Which of the following is NOT a benefit of an effective capital allocation process?

An effective capital allocation process plays a crucial role in the financial health and operational efficiency of an organization. It is designed to ensure that financial resources are distributed in a manner that maximizes returns while supporting sustainable growth.

When we consider the benefits listed, the first three options—promoting productivity, encouraging innovation, and facilitating buying and selling securities—align with the positive outcomes of a well-implemented capital allocation strategy. Promoting productivity refers to the effective deployment of resources that leads to increased output and efficiency in operations. Encouraging innovation is also a key benefit, as directing capital towards research and development can lead to new products and processes that drive competitive advantage. Facilitating buying and selling securities is pivotal in maintaining an active market where capital can be easily accessed and allocated according to performance and potential.

In contrast, the incorrect option, which states that an effective capital allocation process decreases market liquidity, stands out as contrary to the foundational principles of capital markets. Market liquidity refers to the ease with which assets can be bought and sold without causing significant price fluctuations. A robust capital allocation process typically enhances market liquidity by ensuring that market participants can efficiently transact, thus increasing the volume of trades and improving the overall function of the market.

Overall, while capital allocation aims to optimize the