Question

Which of the following statement(s) is/are true about Wholly-owned subsidiaries?

1. There is no risk-sharing in the case of wholly owned subsidiaries.

2. The parent firm needs to invest 100 percent of the equity capital in the foreign firm. Hence, it is not suitable for small or medium-sized firms.

• A. Both statements are true
• B. Only statement 1 is true
• C. Only statement 2 is true
• D. None of the statements is true

Answer 1

The correct option is A

Both statements are true

Both statements are true. There is no risk-sharing in the case of wholly owned subsidiaries. Since, the investment is completely done by the parent firm, the losses occurring from the potential failure of the company has to be borne by the parent company itself.