The Diversification Effect on Heterogeneity of Investor Beliefs

In the paper, we study the effect of multiple industry operations on the heterogeneity of investor beliefs. We find that diversification reduces the level of heterogeneous beliefs on a firm's future prospects. We also provide evidence that the diversification effect on the heterogeneity of beliefs is unlikely to be driven by the endogeneity of a firm's decision to diversify. Finally, we find that the excess level of heterogeneous beliefs on diversified firms relative to focused firms follows a pattern of mean-reverting. Our results contribute to the understanding about how corporate organization structure affects the heterogeneity of investor beliefs and firm values.