Due diligence is an investigation of a business or person prior
to signing a contract, or an act with a certain standard of
care.
It can be a legal obligation, but the term will more
commonly apply to voluntary investigations. A common example of due diligence
in various industries is the process through which a potential acquirer
evaluates a target company or its assets for an acquisition. The theory behind due diligence holds that performing
this type of investigation contributes significantly to informed decision
making by enhancing the amount and quality of information available to decision
makers and by ensuring that this information is systematically used to
deliberate in a reflexive manner on the decision at hand and all its costs,
benefits, and risks.
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