Does it Pay to be a Multinational? A Large‐Sample, Cross‐National Replication Assessing the Multinationality‐Performance Relationship

Abstract

Does it pay to be a multinational? Despite decades of empirical research, we still do not know. We undertake a large‐sample, cross‐national replication of Lu and Beamish (2004) and Berry and Kaul's (2016) works to examine whether the multinationality–performance relationship is S‐shaped in a 2009–2016 panel of 889,865 firm‐year observations. Using a two‐stage least squares fixed‐effects model that accounts for endogeneity on a subsample of 32,835 multinationals from 64 countries, we find no evidence of an S‐shaped relationship; nor do we see it in any of the single‐country contexts. Our results show no evidence of any within‐firm effect of multinationality on performance, highlighting the need for more contextually‐grounded research focused on explaining between‐firm effects to advance our theoretical and empirical understanding of the multinationality‐performance relationship. Managerial Summary We replicate two studies that examined the relationship between a firm's multinationality and its performance. Lu and Beamish (2004) found evidence of an S‐shaped relationship — with performance first decreasing, then increasing, then decreasing again as firms expanded abroad — in a sample of Japanese firms; Berry and Kaul (2016) found no evidence of an S‐shaped pattern in a sample of U.S. multinationals. We test for the same relationship using data from nearly 250,000 firms based in over 100 countries from 2009 to 2016 and find no evidence of an S‐shaped pattern or of any effect of multinationality. Our study thus adds substantial evidence to the one shown by Berry and Kaul (2016), emphasizing the need to focus on how contextual differences influence the multinationality–performance relationship.

Keywords: Firm performance, multinationality, panel data, replication, S-curve

JEL Classification: M00, M1, M10, M16, M2, M20, M21, D21, D22, F00, F01, F02, F2, F20, F21, F23, F60, F61