The purpose of this paper is to investigate the relationship between international diversification (ID) and performance in multinational firms by proposing a new and unified theory of multinationality that incorporates, integrates and extends previous concepts and hypotheses.
The study relies on data concerning the world’s largest companies, derived from the Fortune Global 500. An OLS regression analysis has been carried out in order to test a four-stage relationship between ID and performance.
On a final sample of 391 multinationals, this paper provides an empirical evidence that support the existence of a four-stage theory by using a relevant sample of “top” multinational firms.
This study has two main limitations: first, a single indicator was used to measure ID; second, some potential variables have had to be excluded due to data availability.
This paper offers some intriguing practical implications, as well: first, it points out to some thresholds where performances are higher at certain level of ID; second, it highlights that performance will face two kinds of decreases due to intra-regional and inter-regional liability of foreignness; finally, it individuates differences with regard to some firms’ characteristics such as home or host country’s behaviors and about the kind of industries in which they operate, as well.
This is one of the first studies that tests and finds positive evidences about a four-stage theory, regarding to the relationship between ID and performance. Moreover, it proposes other interesting results with regard to the differences between home vs host country-oriented firms and between manufacturing vs services multinational firms.
