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The objective of this study is to investigate the effect of diversification strategy towards the level of financial distress. Altman Z-score is used to measure the level of financial distress and Herfindahl index is used to measure diversification in this research. This study used 101 non-financial companies listed in Indonesian Stock Exchange during 2014-2016 (303 firm years) as samples. For testing the hypotheses, Mann Whitney test and panel data regression with random effect model was used. The results showed that there are Z score differences between high and low diversified firms; and diversification has a negative effect towards the level of financial distress. The control variables testing showed that liquidity, profitability, and firm size negatively influence the level of financial distress, while leverage has a positive effect towards the level of financial distress. Besides, the type of diversification has no effect toward financial distress.

Does Diversification Strategy Reduce The Level of Financial Distress? (Evidence from Indonesia)