Firm Heterogeneity and the Internationalization-Firm Performance Relationship

Abstract

There is a paucity of research that investigates the effect of governance mechanisms on the outcomes of internationalization in emerging market contexts. This paper attempts to addresses the lack of research on the effect of governance mechanisms on the outcomes of internationalization in emerging market contexts and focuses on two unique attributes associated with emerging markets, namely, family ownership and business group affiliation. In order to investigate these phenomena, we utilize an eleven-year longitudinal data set of 2,138 manufacturing firms from an emerging market (India) with a combined total of 17,212 firm-year observations. Specifically, our key finding indicates that a firm that has high levels of family ownership and is affiliated with a business group can change the nature of the underlying U-shaped relationship between internationalization and performance (I-P) to an inverted ‘U’ relationship. We also find that the threshold at which the change in the shape of the ‘U’ occurs is very close to the levels at which the owners get considerable control over the firm. Therefore, by integrating corporate governance literature with strategic management and international business literatures, our study represents one of the very few that simultaneously investigate the twin effect of key governance mechanisms (family ownership and business group affiliation) on the I-P relationship by operationalizing ownership in a manner that helps bring out the influence of the institutional context as well.