The paper examines the diversification discount, which is the observed trade discount of diversified firms relative to single-segment firms. It argues that this discount is not necessarily due to diversification destroying value, but rather due to firm-specific characteristics that influence both the decision to diversify and firm value. The study uses data from the Compustat Industry Segment File (1978-1996) to analyze the relationship between diversification and firm value, controlling for endogeneity in the diversification decision. The paper finds that when controlling for endogeneity, the diversification discount often disappears or even turns into a premium. This suggests that the observed discount may be due to firm-specific characteristics rather than diversification itself. The study also examines refocusing firms and finds a positive correlation between the decision to refocus and firm value, indicating that refocusing may be a value-creating activity. The paper discusses the endogeneity of the diversification decision, noting that firm characteristics that influence the decision to diversify may also affect firm value. To address this, the study uses three econometric techniques: fixed-effect estimation, probit estimation of the probability of diversifying, and Heckman's two-step procedure to control for self-selection bias. The results show that the diversification discount is significantly reduced or eliminated when endogeneity is controlled for. The study also finds that firms with high private benefits of control may be discounted, and that the decision to diversify is endogenous, influenced by firm-specific characteristics. The paper concludes that the effect of diversification on firm value depends on the firm's characteristics and that the diversification decision should be treated as an endogenous variable when analyzing its impact on firm value.The paper examines the diversification discount, which is the observed trade discount of diversified firms relative to single-segment firms. It argues that this discount is not necessarily due to diversification destroying value, but rather due to firm-specific characteristics that influence both the decision to diversify and firm value. The study uses data from the Compustat Industry Segment File (1978-1996) to analyze the relationship between diversification and firm value, controlling for endogeneity in the diversification decision. The paper finds that when controlling for endogeneity, the diversification discount often disappears or even turns into a premium. This suggests that the observed discount may be due to firm-specific characteristics rather than diversification itself. The study also examines refocusing firms and finds a positive correlation between the decision to refocus and firm value, indicating that refocusing may be a value-creating activity. The paper discusses the endogeneity of the diversification decision, noting that firm characteristics that influence the decision to diversify may also affect firm value. To address this, the study uses three econometric techniques: fixed-effect estimation, probit estimation of the probability of diversifying, and Heckman's two-step procedure to control for self-selection bias. The results show that the diversification discount is significantly reduced or eliminated when endogeneity is controlled for. The study also finds that firms with high private benefits of control may be discounted, and that the decision to diversify is endogenous, influenced by firm-specific characteristics. The paper concludes that the effect of diversification on firm value depends on the firm's characteristics and that the diversification decision should be treated as an endogenous variable when analyzing its impact on firm value.