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Garcia-Garcia, Raquel; García-Canal, Esteban and Guillén, Mauro F.
(2019).
DOI: https://doi.org/10.1007/s11575-019-00402-w
Abstract
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.