For many years, there have been debates about the benefit and cost of corporate diversification strategy. This research provide evidence on corporate diversification and it consequences toward firm value. Corporate diversification as part of internal market mechanism can have benefit and cost on performance of the firm. We estimate that diversification strategy will reduce firm value especially in situation like Indonesia with less-developed financial market and many companies still recovered from monetary crises in recent years. We find that companies with diversified business segment have negative excess value comparing with stand alone firms. In relation with firms characteristics, its show that level of leverage and asset size positively related with firm value. This result is rejecting internal capital market hypothesis.
Keywords: diversification, excess value, internal market, firm value