Scope of Study: This study deals with the relationship between industry risk and diversification. Industry risk and diversification are defined and their relationships are discussed, Previous literature on the use of beta as a measure of risk , segment reporting as a tool for analysis of diversified companies , and the portfolio concept is reviewed and their relevancy to the study is discussed, By using the Financial Accounting Standards Board's Statement 11 on Segmental Disclosure for determining diversification within an industry and using the beta measure as a proxy for industry risk, the relationship was examined in a cross-sectional study for a one-year time period, 1982. A major hypothesis was developed to explain the relationship and several minor hypotheses were developed for the separate regression equations using different diversification measures.

Findings of the Study: The results for the regression models were inconclusive. One of the minor hypothesis was rejected outright and the other two were not significant but indicative of a relationship. Recommendations were made for future studies, such as using a time-series analysis with different definitions of diversification.