The impact of MNE cultural diversity on the internationalization-performance relationship: Theory and evidence from European multinational enterprises

Abstract

Prior work has established the importance of degree of internationalization for understanding the performance of multinational enterprises. Despite all efforts, however, the relationship between degree of internationalization and firm performance (I-P) is still the subject of ongoing debate following inconclusive findings. We suggest that the international business literature has largely overlooked MNE cultural diversity as an essential determinant of the I-P relationship. We argue that the impact of the degree of internationalization on MNE performance is contingent on MNE cultural diversity. The impact of the degree of internationalization on performance is positive for MNEs that operate in culturally similar countries and negative for MNEs that operate in culturally diverse countries. Our study is among the first to examine the impact of MNE cultural diversity on the I-P relationship with a unique panel dataset from European multinationals. The results provide convincing support for our approach to the study of the degree of internationalization and MNE performance.