Effects of International Diversification and Firm Resources on Firm Performance Risk

Abstract

Researchers in international business and strategic management have long been interested in understanding international diversification as a strategy to manage and control firm performance risk. The general argument in this research stream has been arguing that international diversification or multinationality serves as a portfolio diversification strategy that can reduce firm performance risk. However, a major shortcoming of existing studies has been the failure of incorporating firm resources in examining the relationship between international diversification and firm performance risk. Given the importance of firm resources, this study examines the effect of firm resources on firm performance risk relative to that of international diversification. The present study has tested this alternative hypothesis by examining 258 firms over a 5-year period from 13 industries. Results show that it is not international diversification but firm resources such as marketing assets that have a dominant effect on firm performance risk.