This paper investigates whether the diversity of activities conducted by financial institutions influences their market valuations. We find that there is a diversification discount: The market values financial conglomerates that engage in multiple activities, e.g., lending and non-lending financial services, lower than if those financial conglomerates were broken into financial intermediaries that specialize in the individual activities. While difficult to identify a single causal factor, the results are consistent with theories that stress intensified agency problems in financial conglomerates that engage in multiple activities and indicate that economies of scope are not sufficiently large to produce a diversification premium. The paper uses a modified version of the Lang and Stulz (1994) and LeBaron and Speidell's (1987) 'chop-shop' method to compare the q's of diversified banks to the estimates of the q's these banks would have if they were decomposed into a bank specialized in loan-making activities and a bank specialized in non-lending activities. Using data on 836 banks, across 43 countries, over the period 1998-2002, we examine the impact of diversity on the valuation of financial conglomerates. We find a diversification discount. The market values banks that engage in multiple activities much lower than if those banks were broken-up into financial intermediaries that specialize in the individual activities. The results are consistent with the view that diversification intensifies agency problems in financial conglomerates with adverse implications on market valuations and these "costs" to diversification outweigh any benefits accruing from economies of scope. Nevertheless, although we conduct an array of robustness checks to sharpen the interpretation of the findings, we do not directly measure agency problems. Thus, we cannot unequivocally conclude that intensified agency problems in financial conglomerates drive the results. We can more confidently argue that economies of scope are not sufficiently large to produce a diversification premium. The results are robust to controlling for simultaneity bias and some non-agency cost explanations of the diversification discount. We find a negative relationship between diversification and bank valuations. The paper proceeds as follows. Section 2 describes the data. Section 3 presents the core results. Extensions and robustness tests are presented in section 4. Section 5 concludes.This paper investigates whether the diversity of activities conducted by financial institutions influences their market valuations. We find that there is a diversification discount: The market values financial conglomerates that engage in multiple activities, e.g., lending and non-lending financial services, lower than if those financial conglomerates were broken into financial intermediaries that specialize in the individual activities. While difficult to identify a single causal factor, the results are consistent with theories that stress intensified agency problems in financial conglomerates that engage in multiple activities and indicate that economies of scope are not sufficiently large to produce a diversification premium. The paper uses a modified version of the Lang and Stulz (1994) and LeBaron and Speidell's (1987) 'chop-shop' method to compare the q's of diversified banks to the estimates of the q's these banks would have if they were decomposed into a bank specialized in loan-making activities and a bank specialized in non-lending activities. Using data on 836 banks, across 43 countries, over the period 1998-2002, we examine the impact of diversity on the valuation of financial conglomerates. We find a diversification discount. The market values banks that engage in multiple activities much lower than if those banks were broken-up into financial intermediaries that specialize in the individual activities. The results are consistent with the view that diversification intensifies agency problems in financial conglomerates with adverse implications on market valuations and these "costs" to diversification outweigh any benefits accruing from economies of scope. Nevertheless, although we conduct an array of robustness checks to sharpen the interpretation of the findings, we do not directly measure agency problems. Thus, we cannot unequivocally conclude that intensified agency problems in financial conglomerates drive the results. We can more confidently argue that economies of scope are not sufficiently large to produce a diversification premium. The results are robust to controlling for simultaneity bias and some non-agency cost explanations of the diversification discount. We find a negative relationship between diversification and bank valuations. The paper proceeds as follows. Section 2 describes the data. Section 3 presents the core results. Extensions and robustness tests are presented in section 4. Section 5 concludes.