Does Diversification Cause the 'Diversification Discount'?

Using recent econometric developments about causal inference, I examine whether diversification destroys value. I estimate the value effect of diversification by matching diversifying and single-segment firms on their propensity score––the predicted values from a probit model of the propensity to diversify. I also use Heckman’s (1979) two-stage estimator for comparison purposes. I find that on average, diversification does not destroy value. This finding is robust to the choice of estimator, sample, measures of excess value, and specification.