Competitive Performance and International Capital Mobility: Hypothesis of Potential Endogenous and Exogenous Competitive Advantages of Firms

Abstract

The endogenous and exogenous competitive advantages of firms across different phases of foreign direct investment depend on the resources used by industries for their financial development and growth. These advantages, as well as the influence of internal owners, facilitate the access of firms to foreign financial markets. This study attempts to clarify the relationship between those financial goals and firm's advantages, as well as to analyze the relationship between the degree of international diversification (hereinafter DOI) and firm value in Germany, France, the U.K., Spain or Denmark. Our results support a curvilinear relationship between DOI and firm performance that is articulated in three stages in the presence of industry reputation, technological, distribution and financial systems barriers and also showing high transaction cost economics. These findings point to a cyclic process in the firm's international financial and geographical expansion, where overcoming such barriers and developing governance and coordination mechanisms to minimize transaction cost economics becomes the main challenge of the firm in order to compete with a dynamic capital mobility at the worldwide level.

Keywords: firm performance, international diversification, competitive advantages, ownership

JEL Classification: F21, F30