The Degree of Internationalization and Firm Productivity: Empirical Evidence from Large Multinationals

Abstract

AbstractThis paper examines whether the S‐shaped and M‐shaped hypotheses explain the internalization firm's productivity relationship. The internationalization–performance (I–P) literature uses accounting‐based performance indicators in order to examine such a relationship. In contrast to the mainstream literature, productivity and its components (efficiency and technical change) are used as a firm's performance measures. Utilizing a semi‐parametric model based on artificial neural network techniques, accounting for potential heterogeneity, firms’ productivity, efficiency and technical change levels are estimated. The innovative methodological framework is applied in a sample of large, experienced non‐financial firms over the period 1992–2019. The empirical evidence suggests that firms’ internationalization in relation to their productivity and efficiency levels exhibits an inverted U‐shaped relationship. This finding corresponds to the last two stages of the S‐shaped and M‐shaped hypotheses. Furthermore, the evidence suggests that internationalization has a positive nonlinear effect on firms’ innovation capacity (technical change). Overall, the empirical findings from data‐driven techniques applied, support the view that the effect of internationalization on firms’ productivity levels is asymmetric.