Benjamin E. Hermalin and Michael L. Katz<BR> Keywords: diversification; principal-agent relationship<BR> Firms undertake a variety of actions to reduce risk through diversification, including entering diverse lines of business, taking on project partners, and maintaining portfolios of risky projects...

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive...

By a well-known argument, securities holders do not directly benefit from risk-reducing corporate diversification when they can replicate this diversification on their own. Some have argued that corporate diversification may be of value, or can otherwise be explained by, the agency relationship...