Examining the relationship between firm internationalization and firm performance: A nonparametric analysis

Halkos, George and Tzeremes, Nickolaos (2007): Examining the relationship between firm internationalization and firm performance: A nonparametric analysis.

Abstract

This paper by performing a bootstrapped Data Envelopment Analysis (DEA) tries to constitute to the existing literature by investigating if firms’ internationalization levels have an impact on their performance. Using a sample of ten Transnational corporations from South-East Europe the paper provides information regarding their efficiency levels. Finally, using the “Transnationality Index” (TNI) provided by UNCTAD in order to capture the levels of internationalisation, our results reveal that there is a positive influence on firms’ performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Firm internationalization; Firm performance; Multinational corporations; Transnationality index; DEA
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C67 - Input-Output Models; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics

References

Allen, R., Athanassopoulos, A., Dyson, R. G. and Thanassoulis, E., 1997, “Weights Restrictions and Value Judgements in Data Envelopment Analysis: Evolution, Development and Future Directions”, Annals of Operational Research 73, 13-34.

Andersen, P. and Petersen, N. C., 1993, “A Procedure for Ranking Efficient Units in Data Envelopment Analysis”,Management Science, 39, 1261–1264.

Annavarjula, M. and Beldona, S., 2000, “Multinationality-Performance Relationship: A Review and Reconceptualization”, International Journal of Organizational Analysis, 8, 48-67.

Banker, R. D., Charnes, A. Cooper, W. W., 1984, “Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis”, Management Science 30, 1078-1092.

Banker, R.D., Morey, R.C., 1986, “The use of categorical variables in Data Envelopment Analysis”, Management Science, 32, 1613–1627.

Barkema, H.G. and Vermeulen, F., 1998, “International expansion through start-up or acquisition: A learning perspective”, Academy of Management Journal 41(1), 7-26.

Bauer, P.W., Berger, A.N., Ferrier, G.D., Humphrey, D.B., 1998, “Consistency conditions for regulatory analysis of financial institutions: A comparison of frontier methods”, Journal of Economics and Business, 50, 85–114.

Bernard, A and Jensen, B., 1999, “Exceptional Exporter Performance: Cause Effects or Both?”, Journal of International Economics 47, 1-26.

Brockett, P. L., Golany, B., 1996, “Using rank statistics for determining programming efficiency differences in data envelopment analysis”, Management Science 42, 466-472.

Buckley, P.J. and Casson, M., 1976, The Future of Multinational Enterprise, London: Holmes & Meier.

Buhovac, A.R. and Slapnicar, S., 2007, “The role of balanced, strategic, cascaded and aligned performance measurement in enhancing firm performance”, Economic and Business Review 9 (1), 47-78.

Caves, R.E., 1971, “International corporations: The industrial economics of foreign investment”, Economica 38, 1-27.

Charnes, A., Cooper, W. W. and Rhodes, E., 1978, “Measuring the Efficiency of Decision Making Units”, European Journal of Operational Research. 2, 429-444.

Coelli, T. J., Rao, P. D. S. and Battese, G. E., 2005, An introduction to efficiency and production analysis, Springer Science: New York.

Contractor, F.J., Kundu, S. and Hsu, C., 2003, “A Three-Stage Theory of International Expansion: The Link Between Multinationality and Performance in the Service Sector”, Journal of International Business Studies 34, 5–18.

Daraio, C. and Simar, L., 2007, Advanced robust and nonparametric methods in efficiency analysis. Springer Science: New York.

Denis, D.J., Denis, D.K. and Yost, K., 2002, “Global diversification, industrial diversification, and firm value”, Journal of Finance, 57, 1951-1979.

Depperu, D. and Cerrato, D., 2005, Analyzing International Competitiveness At The Firm Level: Concepts And Measures. Working Paper No. 32, Dipartimento Scienze Sociali - Sezione Economia Aziendale, Universita Cattolica Del Sacro Cuore, Piacenza.

Doms, M.E. and Jensen, J.B., 1998, “Comparing wages, skills, and productivity between domestically and foreign-owned manufacturing establishments in the United States”, In Baldwin, R. Lipsey, R. and Richardson, J.D. eds., Geography and Ownership as Bases for Economic Accounting, Chicago: Chicago University Press, 235-255.

Dunning, J.H., 1977, Trade location of economic activity and the multinational enterprise: a search for an eclectic approach, in B. Ohlin, P. Hesselborn and P.M. Wijkman (eds.), The International Allocation of Economic Activity, London and New York: Macmillan, pp. 395-418.

Dunning, J.H., 1981, “Explaining the international direct investment position of countries: towards a dynamic or developmental approach”, Weltwirtschaftliches Archiv, 119 (1), 30-64.

Dyson, R.G., Allen, R., Camanho, A.S., Podinovski, V.V., Sarrico,C.S., Shale, E.A., 2001, “Pitfalls and protocols in DEA”, European Journal of Operational Research, 132, 245–259.

Errunza, V.R. and Senbet, L.W., 1984, “International corporate diversification, market valuation, and size-adjusted evidence”, Journal of Finance, 39, 727-743.

Fried, H.O., Lovell, C.A.K., Schmidt, S.S., Yaisawarng, S., 2002, “Accounting for environmental effects and statistical noise in Data Envelopment Analysis”, Journal of Productivity Analysis, 17, 157–174.

Grant, R.M., 1987, “Multinationality and performance among British manufacturing companies”, Journal of International Business Studies, 18(3), 79-89.

Grosskopf, S., Valdamanis, A., 1987, “Measuring hospital performance: a non-parametric approach”, Journal of Health Economics, 6, 89-107.

Halkos, G.E. and Tzeremes, N.G., 2007, “Productivity efficiency and firm size: An empirical analysis of foreign owned, companies”, International Business Review, 16, 713-731.

Hassel, A., Höpner, M., Kurdelbusch, A., Rehder, B., and Zugehöret, R., 2003, “Two Dimensions of the Internationalization of Firms”, Journal of Management Studies, 40(3), 705-723.

Hitt, M.A., Hoskisson, R.E. and Kim, H., 1997, “International diversification: Effects on innovation and firm performance in product-diversified firms”, Academy of Management Journal, 40(4), 767-768.

Hofstede, G., 1980 Culture’s Consequences: International Differences in Work-Related Values. London: Sage Publications.

Hsu, C. and Boggs, D. J., 2003, “Internationalization and Performance: Traditional Measures and their Decomposition”, Multinational Business Review, 11, 23–49.

Hymer, S.H., 1976, The International Operations of National Firms: A Study of Direct Foreign Investment, Cambridge (MA): MIT Press.

Ietto-Gillies, G., 1998, “Different conceptual frameworks for the assessment of the degree of internationalization: an empirical analysis of the various indices for the top 100 transnational corporations”, Transnational Corporations, 7(1), 17–39.

Kogut, B., 1985, “Designing global strategies: Comparative and competitive value-added chains”, Sloan Management Review, Fall, 27-38.

Lu J.W. and Beamish P.W., 2004, “International diversification and firm performance: the S-Curve Hypothesis”, Academy of Management Journal, 47(4), 598-609.

Lu, J.W. and Beamish, P.W., 2001, “The Internationalisation and Performance of SMEs”, Strategic Management Journal, 22, 565-586.

Markowitz, H., 1952, “Portfolio Selection”, Journal of Finance 7, 77-91.

McDougall, P.P. and Oviatt, B.M., 1996, “New Venture Internationalization, Strategic Change, and Performance: A follow-up study”, Journal of Business Venturing, 11(1), 23-40.

Morck, R. and Yeung, B., 1991, “Why investors value multinationality”, Journal of Business, 64(2), 165-187.

Nunamaker, T. R., 1985, “Using data envelopment analysis to measure the efficiency of non-profit organisations: a critical evaluation”, Managerial and Decision Economics 6(1), 50-58.

Ramaswamy, K., Kroeck, G.K. and Renfort, W., 1996, “Measuring the degree of internationalization of a firm: a comment”, Journal of International Business Studies, 27(1), 167-177.

Rugman, A. M., 1982, New Theories of the Multinational Enterprise, New York, St. Martin's Press.

Ruigrok, W. and Wagner, H., 2003, “Internationalization and Performance: An Organizational Learning Perspective”, Management International Review, 43, 63-83.

Sambharya, R., 1995, “The Combined Effect of International Diversification and Product Diversification Strategies on the Performance of US-Based Multinational Corporations”, Management International Review, 35, 197-218.

Shephard, R. W., 1970, Theory of Cost and Production Function. Princeton University Press, Princeton, NJ.

Simar, L. and Wilson, P.W., 1998, “Sensitivity analysis of efficiency scores: how to bootstrap in non parametric frontier models”, Management Science, 44, 1, 49-61.

Simar, L. and Wilson, P.W., 2000, “A general methodology for bootstrapping in non-parametric frontier models,” Journal of Applied Statistics, 27,6, 779 -802.

Simar, L. and Wilson, P.W., 2002, “Non parametric tests of return to scale”, European Journal of Operational Research, 139, 115-132.

Simar, L., & Wilson, P. W., 2004, “Estimation and inference in two-stage, semi-parametric models of production processes”, Discussion Paper, Institut de Statistique, Universite´Catholique de Louvain, Belgium.

Staat, M., 2001, “The effect of sample size on the mean efficiency in DEA: Comment’, Journal of Productivity Analysis, 15,129–137.

Sullivan, D., 1994, “Measuring the degree of internationalization of a firm”, Journal of International Business Studies, 25(2), 325-342.

Tallman, S. & Li, J., 1996, “Effects of International Diversity and Product Diversity on the Performance of Multinational Firms”, Academy of Management Journal, 39, 179-196.

Teece, D.J., 1980, “Economies of scope and the scope of the enterprise”, Journal of Economic Behavior and Organization, 1, 223-247.

Vernon, R., 1971, Sovereignty at Bay: The Multinational Spread of US Enterprises, New York: Basic Books.

Wernerfelt, B., 1984, “A Resource-Based View of the Firm”, Strategic Management Journal, 5, 171-180.

World Investment Report, 2006, FDI from developing and transition economies: Implications for development, New York and Geneva, UNCTAD.

Zhang, Y., Bartels, R., 1998, “The effect of sample size on the mean efficiency in DEA with an application to electricity distribution in Australia, Sweden and New Zealand”, Journal of Productivity Analysis, 9, 187–204.