The Effects of International Diversification on Firm Performance: An Empirical Study across Twelve European Countries

摘要

The relationship between international diversification and firm performance is a binomial that has led to many investigations leading to mixed results, in some cases there is a positive relationship, in others no significant relationship or even negative. In this paper we try to find the possible reasons why these results occur. The international diversification is assessed by the ratio of exports to total turnover. Besides, we extend the research to the different performance that industrial and service firms could have, bearing in mind, too, if their business culture base originates from civil law or common law countries. Based on a sample of 1721 firms from twelve European countries, we compare this relationship for the 2000-2009 period. The empirical results obtained show a stronger ID-performance positive relationship in service firms than in industrial ones. Those firms with a culture based on civil law systems (bank oriented financial system) will have greater flexibility to counteract the negative relationship between ID and performance, than those firms with culture based on common law systems (capital market oriented system).