Purpose
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.
Design/methodology/approach
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.
Findings
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.
Research limitations/implications
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.
Practical implications
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.
Originality/value
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.