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Essay / Research Paper Abstract
5 pages in length. It has long been asserted that diversification is the key to financial security; however, is this indeed the answer for Rocky Athletics? In light of the fact that this fifteen-store, two thousand-employee sportswear and equipment company has reached a pinnacle in its American profit potential, corporate executives believe it is time to turn the business multinational. Important to note, however, is the fact that numerous studies have been conducted which point to the conclusion that financial diversification is not a cure-all for the disease known as business risk. The writer discusses pertinent aspects of commerce and organizational theory as they relate to the globalization of Rocky Athletics. Bibliography lists 4 sources.
Page Count:
5 pages (~225 words per page)
File: LM1_TLCdiver.doc
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Unformatted sample text from the term paper:
light of the fact that this fifteen-store, two thousand-employee sportswear and equipment company has reached a pinnacle in its American profit potential, corporate executives believe it is time to turn
the business multinational. Important to note, however, is the fact that numerous studies have been conducted which point to the conclusion that financial diversification is not a cure-all for
the disease known as business risk. For Rocky Athletics, pros and cons have been weighed with the result pointing in the positive direction of international expansion.
Prior to making such a momentous decision, corporate executives examined the extent to which Rocky Athletics might actually crumble under the added and unfamiliar burden of
international commerce. Was their venture to become just another statistic in a sea of failed attempts at diversification? Burgman (1996) points out that because multinational corporations operate in
many different correlated economies simultaneously the capital structures in these organizations should be able to support more debt than those of purely domestic corporations. Diversification such as this should
therefore result in a less volatile earnings market and probably less chance of bankruptcy. Multinational corporations in this case would appear to have not only less expected bankruptcy costs,
but also a higher leverage ratio because of a trade-off between expected bankruptcy costs and the tax shelter of debt. However, Burgman (1996) goes on to explain that evidence
exists that multinational corporations, in fact, have less debt in their capital structure than do many purely domestic corporations. This leads one to surmise that international financial diversification does
not necessarily lead to less business risk. In fact it is possible that even though diversification can sometimes make earnings less volatile, there are also new factors introduced such
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