This study investigates the role of managerial overconfidence in the context of corporate diversification decisions. First, we find that overconfident managers are more likely to manage diversified than focused firms. Second, we find that the diversification discount is concentrated exclusively in companies managed by overconfident managers. Third, we document that the discount is greater following diversification and, most importantly, it persists for several years only for firms managed by overconfident managers. Our evidence is consistent with the view that overconfident managers miscalibrate benefits/costs associated with diversification decisions and perceive them as invariably value-creating.