Multinationality, R&D Intensity, and Firm Performance: Evidence from U.S. Manufacturing Firms

We examine whether firms' multinationality leads to better performance and what the role of R&D investment is in the multinationality-performance linkage. Unlike the previous studies, we employ both accounting-and market-based measures of firm performance for a large sample of U.S. manufacturing firms. Our results show that the empirical relation between multinationality and performance is not monotonic but varies with the phase of a firm's multinationality, starting with a negative relation initially, followed by a positive one, and then again a negative one. This horizontal S-shaped curvilinear relation of multinationality is more pronounced for the market-based performance measure and is supportive of the three-stage theory of internationalization. We also find that a firm's multinationality is related to greater firm performance when the firm possesses R&D investment, and that the effect of R&D increases with the extent of a firm's multinationality. These results lend strong support for the Internalization theory and the resource-based view of firms' international expansion. Our results are robust to different model specifications with an alternative measure of multinationality.