Abstract
This paper investigates the relationship between related and unrelated diversification and efficiency first, then examines the relationship between efficiency and firm value in a sample of 68,758 firm-years of U.S. public companies. It introduces efficiency by using Data Envelopment Analysis (DEA) approach to diversification and performance research. Prior literature is inconsistency in finding of research and lack of consensus regarding this linkage. However, we study their relationship from an efficiency perspective instead of studying directly. Our paper finds that related diversity exhibits inverted U shape relationship with efficiency, and unrelated diversity does not negatively relate with efficiency. In addition, we find that efficiency is positively related to firm value. Moreover, efficiency exhibits inverted U shape relationship with firm value change. Overall, our results demonstrate that efficiency plays an important role in diversification study. Keywords: Data Envelopment analysis(DEA), efficiency, diversification, firm value
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