Resource Allocation, Level of International Diversification and Firm Performance

Abstract

This paper investigates the threads between international diversification and firm performance, resource
allocation to R&D and capital expenditure. The context of this study is a resource-based view and transaction
costs theory. Firms that are going international, benefit from the resources available to them outside their home
country as well as from the utilization of their core competencies in other countries. Regression models without
interactive terms indicate that resource allocation significantly impacts firm performance. Capital expenditure is
positively associated with return on assets, while research and development expenditure undermines the firm’s
performance. Analyses suggest that there is no thorough relation between international diversification and
returns, regardless of using asset or sales diversification variables. The estimates of diversification variable are
negative and insignificant in most models.