Diversification discount over the long run: New perspectives

•Distribution of excess value for diversified firms grows more dispersed over time.•Distribution of allocation efficiency for diversified firms converges over time.•Three quarters of diversified firms do not severely misallocate capital after 2000.•Effect of allocation efficiency on excess value becomes larger in recent years. We study the long-term trend of excess value and internal capital allocation of diversified firms from 1976 to 2013. The late 1970s and 1980s are characterized by large average diversification discount but narrow dispersion of excess value. Excess value of diversified firms becomes less negative on average after 1990, but its dispersion grows larger. In contrast, capital allocation efficiency of diversified firms converges significantly over time. Three quarters of diversified firms do not suffer from severe capital misallocation after the early 2000s. The effect of capital allocation efficiency on excess value varies over time and becomes larger in recent years.