ABSTRACT
Diversification is a company’s strategic choice and has long-term implications. Previous studies show that there is still variation regarding the effect of diversification on a firm’s value, and this is seen as an opportunity to conduct further research by using the Investment Opportunity Set (IOS) as a mediating variable. This study therefore aims to analyze the role of diversification on a firm’s value with IOS as a mediating variable. The study was conducted on 224 companies in the manufacturing sector of the Indonesian Stock Exchange (IDX) for the period 2013-2015. Hypothesis testing was conducted using partial least squares and the results revealed that diversification had a positive, statistically significant impact on corporate value. It also had a positive, statistically significant effect on IOS. This study also proved that IOS had a positive, statistically significant effect on corporate value. Finally, this study proved that IOS partially mediated the diversification-corporate value relationship.
