This paper is discussing two main topics on the basis of agency theory. The first one is about the effect of internal control on product diversification. And the second main topic is that how the internal control affects the product diversification firm’s excess value. We argue that when company has internal control deficiencies, It would like to taking diversification strategies, which means weakness Internal control to create the agency problem between shareholders and manager. Data are from the database of Audit Analytics and Compustat. We find that, the relationship between internal control deficiencies and diversification firms is significantly positive. And there are also some evidence of internal control deficiencies will destroy diversification firm’s value.
