Market Size, Legal Institutions, and International Diversification Strategies: Implications for the Performance of Multinational Firms

Abstract

and Key Results 0Recognizing that country-specifi c resources are generally diffi cult to imitate or diffuse across national boundaries, we propose that home country conditions are key determinants of fi rms' strategic choices. By embracing insights from both institutional economics and resource-based view, we identify two country-level environmental constituents -domestic market size and legal institutions -to examine how these resources infl uence multinational fi rms' international diversifi cation strategies. We further propose that home country legal institutions moderate the link between geographic diversifi cation and fi rm performance. 0 These hypotheses are tested with historical data on 435 multinational fi rms based in 13 developed economies. Results suggest that a multinational fi rm's degree of international diversification has a U-shaped relationship with the size of the fi rm's domestic market; fi rms from civil law countries are more likely to pursue international diversifi cation than their counterparts from common law countries; and the effect of international diversifi cation on fi rm performance was more pronounced among MNCs from civil law countries.

The link between product diversification and performance among Spanish manufacturing firms: Analyzing the role of firm size

“…≥500 emp. (e.g., Grant et al, 1988;Kang et al, 2011;Kistruck et al, 2013;Li & Yue, 2008;Qian, 2002;Tallman & Li, 1996). As indicated above, these results contradict the findings of studies conducted in less developed or emerging countries where the majority found a linear and positive relationship between PD and performance.…”

International Experience in International Business Research: A Conceptualization and Exploration of Key Themes

“…Researchers following this approach have operationalized international diversification as the ratio of foreign sales to total sales (Capar and Kotabe 2003; Contractor et al . 2007; Elango and Sethi 2007; Gaur and Kumar 2009; Li and Yue 2008; Ruigrok and Wagner 2003; Ruigrok et al . 2007; Thomas 2006), the ratio of foreign assets to total assets (Daniels and Bracker 1989; Hsu and Pereira 2008; Mathur et al .…”

Internationalization, resource allocation and firm performance

“…Such difficulties will likely translate to poorer performance (Bloodgood, Sapienza, & Almeida, 1996). Firm size is usually measured using the logarithm of total sales (Belkaoui & Pavlik, 1992;Li & Yue, 2008) and/or the logarithm of total employees (Erramilli, 1996;Li, Zhou, & Shao, 2009). In this study, we used the logarithm of total sales of a firm to indicate firm size.…”