Editing Conglomerate (company) (section)

==Advantages and disadvantages of conglomerates==
{{pro con|section|date=March 2017}}

===Advantages===
*Diversification results in a reduction of investment risk. A downturn suffered by one subsidiary, for instance, can be counterbalanced by stability, or even expansion, in another division. For example, if Berkshire Hathaway's construction materials business has a good year, the profit might be offset by a bad year in its insurance business. This advantage is enhanced by the fact that the business cycle affects industries in different ways. 
*A conglomerate creates an internal [[capital market]] if the external one is not developed enough. Through the internal market, different parts of the conglomerate allocate capital more effectively.
*A conglomerate can show earnings growth, by acquiring companies whose shares are more discounted than its own. In fact, [[Teledyne]], [[General Electric|GE]], and [[Berkshire Hathaway]] have delivered high earnings growth for a time.<ref>{{cite web |url=http://www.investopedia.com/articles/basics/06/conglomerates.asp |title=Conglomerates: Cash Cows or Corporate Chaos? |access-date=2009-05-28 |url-status=live |archive-url=https://web.archive.org/web/20090413022751/http://www.investopedia.com/articles/basics/06/conglomerates.asp |archive-date=2009-04-13 }}</ref>

===Disadvantages===
* The extra layers of management increase costs.<ref>{{cite news| url=http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2527470.ece| title=BP to strip out four layers of management| date=September 25, 2007| author=Dearbail Jordan and Robin Pagnamenta| work=The Times| url-status=dead| archive-url=https://web.archive.org/web/20110612141605/http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2527470.ece| archive-date=June 12, 2011}}</ref>
* Accounting disclosure is less useful information, many numbers are disclosed grouped, rather than separately for each business.  The complexity of a conglomerate's accounts makes it harder for managers, investors, and regulators to analyze and makes it easier for management to hide issues.
* Conglomerates can trade at a discount to the overall individual value of their businesses because investors can achieve diversification on their own simply by purchasing multiple stocks. The whole is often worth less than the sum of its parts.
* Culture clashes can destroy value.<ref>{{cite news| url=http://news.bbc.co.uk/2/hi/business/607338.stm| title=Culture clash: The risks of mergers| date=January 17, 2000| work=BBC News| url-status=live| archive-url=https://web.archive.org/web/20090602063140/http://news.bbc.co.uk/2/hi/business/607338.stm| archive-date=June 2, 2009}}</ref><ref>{{cite journal| title=Surviving Post-merger 'Culture Clash': Can Cultural Leadership Lessen the Casualties?| author=Michelle C. Bligh| journal=Leadership| volume=2| issue=4| pages=395–426| year=2006| doi=10.1177/1742715006068937| s2cid=146156535}}</ref>
* Inertia prevents the development of innovation.<ref>{{cite web | url=http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1319 | title=Innovation and Inertia | work=Stanford University's Entrepreneurship Center | url-status=live | archive-url=https://web.archive.org/web/20090801221352/http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1319 | archive-date=2009-08-01 }}</ref>
* Lack of focus, and inability to manage unrelated businesses equally well.<ref>{{cite web |url=http://moneyterms.co.uk/conglomerate/ |title=Conglomerate |access-date=2009-05-28 |url-status=live |archive-url=https://web.archive.org/web/20090811061808/http://moneyterms.co.uk/conglomerate/ |archive-date=2009-08-11}}</ref>
* [[Brand#Brand extension and brand dilution|Brand dilution]] where the brand loses its brand associations with a market segment, product area, or quality, price, or cachet.
* Conglomerates more easily run the risk of being [[too big to fail]].

Some cite the decreased cost of conglomerate stock (a phenomenon known as [[conglomerate discount]]) as evidential of these disadvantages, while other traders believe this tendency to be a [[market inefficiency]], which undervalues the true strength of these stocks.<ref>{{cite web |url=http://www.investopedia.com/terms/c/conglomeratediscount.asp |title=Conglomerate Discount |access-date=2015-03-31 |url-status=live |archive-url=https://web.archive.org/web/20150330060326/http://www.investopedia.com/terms/c/conglomeratediscount.asp |archive-date=2015-03-30 }}</ref>