This paper explores how the resource endowments of business groups affect diversification strategy, and how different degrees of diversification influence business group financial performance and sustainability. The sample of this study is the top 300 business groups in Taiwan according to China Credit Information Service. Regression results show that tangible, intangible, and human resource endowments all positively affect business group diversification strategy. We also find an inverted-U relationship between the degree of diversification and the financial performance. Thus, diversification strategy enhances business group sustainability.