Abstract
Numerous studies have examined the impact of international diversification on firm performance. However, the literature is characterised by inconsistent findings, suggesting the need for a quantitative review and synthesis of the hypothesised relationships. Using a sample of 263 effect sizes from 187 primary studies between 1974 and 2021, we conduct a meta-analysis to test the relationship between international diversification and firm performance, and the moderating effect of product diversification. The results of our meta-analysis indicate that the relationship between international diversification and firm performance is non-linear inverted U-shaped. Furthermore, we find that performance is higher in firms with low/related product diversity and lower in firms with high/unrelated product diversity, suggesting that the dual-diversification strategy is detrimental to firm performance. Although there is no significant difference in the performance of firms from advanced and emerging economies, the results highlight the importance of intangible assets for diversified firms.
Highlights
International diversification represents the extent to which firms undertake value-adding activities in foreign markets (Hennart, 2007)
The results suggest that the international diversification-performance (ID-P) relationship is positive, with an average correlation coefficient of 0.076 (p < 0.001)
Our findings suggest that firm performance decreases at higher levels of international diversification and that the relationship is stronger among firms with high/unrelated product diversification
Summary
International diversification represents the extent to which firms undertake value-adding activities in foreign markets (Hennart, 2007). Some studies have argued that firms with a wider geographic scope are able to increase profitability by tapping the arbitrage arising from uneven economic development of nations (Ghemawat, 2001; Porter, 1990), Others have suggested that learning is an increasing function of internationalisation and exposure to diverse environments contributes positively to the development of knowledge and intangible assets of the firm, which aids in scanning for new market opportunities (Contractor, Kundu, & Hsu, 2003) As evident from these arguments, there are different theoretical perspectives on the ID-P relationship
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