This study examines the extent of geographical diversification of Malaysian public listed firms and its effects on the costs of debt and equity financing. All companies, except those in the utilities and financial industries listed on Bursa Malaysia with segmental and foreign asset information available in Thomson One Banker database from 2008 to 2012, are used. Herfindahl index is used to compute the degree of diversification for firms, while weighted average costs of debt, equity and capital are used to estimate the costs of financing. The results show that less than half of the sample companies are geographically diversified. Although cost of capital is higher in diversified firms and it increases corresponding to the degree of diversification, confirming diversification in this country is not efficient. Debt has a much lower cost of financing compared to equity, which is consistent with the return tradeoff theory and tax shield effects. The debt ratio has the greatest influence on the weighted cost of debt, while P/E ratio has the greatest influence on the weighted cost of equity. It is also found that the relationships are contingent on the level of diversification of the firms. The more geographical diversification of the firms, the higher the cost of debt. As for the equity, the positive interactive coefficient between P/E and H-index shows that the more geographical diversification of the firms, the lower the cost of equity. Overall, the study concludes that Malaysian firms do not pursue efficient diversification as the cost of capital is higher for diversified firms.