International Dispersion and Profitability: An Institution-Based Approach

Garcia-Garcia, Raquel; García-Canal, Esteban and Guillén, Mauro F. (2019). International Dispersion and Profitability: An Institution-Based Approach. Management International Review (In press).


This study examines the effect of international dispersion on profitability. We use an institution-based approach to propose that increases in international dispersion lead, on average, to profitability downturns. We also argue that this liability of foreignness will affect multinationals from infrastructure industries to a lesser extent because in these industries: 1) the importance of cultural fit in products is low; 2) firms possess regulatory expertise; and 3) firms have limited aggregation opportunities at the regional level. We test our hypotheses on a panel of Spanish listed firms (1986-2007). Our findings point to a negative linear relationship between international dispersion and profitability, which is flatter for infrastructure multinationals. These results contribute to a more context-based understanding of internationalization that highlights the shortcomings of establishing a dispersed international footprint.

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