How Does Internationalization Help Reputation? The Role of the Learning Gap

Abstract

This study delves into the intangible effects of internationalization on reputation, and proposes a mechanism by which internationalization can lead to improved reputation. Grounded in institutional and signaling theories, we begin by proposing that internationalization signals learning advantages deriving from experience in host environments and responses to foreign institutional pressures. Then, we derive the learning gap construct from two principal dimensions of the diversity of location portfolio, namely home—host cognitive distance and power asymmetry; and posit that this learning gap explains the link between internationalization and reputation. Analyses based on the legal service industry demonstrate that while international diversification is important in predicting reputational benefits at home, its effect is mediated through the learning gap deriving from each firm's internationalization, underscoring potential advantages of home—host differences.