研究期間：10208~10307;There is a long debate in the literature whether the diversification discount exists. In this project, I argue that the investor recognition is the key driver for the illusionary diversification discount. Merton (1987) proposes a model with incomplete information in which idiosyncratic risk would be priced for stocks with low investor recognition. I posit that the units within the conglomerate firms stay in the conglomerates to enjoy a higher investor recognition level which cannot be achieved if they were standalone firms. Investor recognition can answer the following three questions: (1) Why diversified firm seemingly traded at discount? (2) Why the targets in acquisitions are discounted before the acquisitions? (3) Why spin-offs seemingly increase the excess value? If failing to account for the investor recognition generates most of the illusionary discount documented in the literature, a much careful examination on whether diversification is value increasing or decreasing would be desired.