Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 Does Internationalization Influence Firm Performance? An Empirical Study of Italian Firms Tiziana La Rocca The present paper aims to investigate the effect of internationalization, both in terms of foreign sales and manufacturing diversification (production plants located abroad), on firm performance. Although a general positive relationship between foreign sales (and foreign production plant) and firm performance is reported, suggesting that internationalization is a valueenhancing strategy, these effects differ according to the macro-areas of interest. With regards of foreign sales, considering the expansion of trade, there is a negative relationship between internationalization and firm performance in North American, while a positive effect is reported with regards of European countries and Asia. Referring to foreign production plants, to realize a production plants in North America is expensive, with a negative effect on performance, while, vice versa, increasing the numbers of plants shows to have a positive effect. By contrast, to have a production plants in EU is positively related to performance, while increasing the numbers of plants has a negative effect. Finally, to have or to increase the production plants in Asia has a negative effect on firm performance. JEL Codes: F23, L25 and M16 1. Introduction The international expansion represents a very important strategic option for business growth and the relationship between internationalization and firm performance is a major issue for researchers and managers. For many companies the expansion into foreign markets has become necessary, but also easier because of the growing liberalization and the reduction of trade barriers (Khanna, Palepu 2006) and even considering the process of globalization and the integration among financial markets around the world. Internationalization is often referred to international diversification (Wiersema, Bowen 2011) concerning a process of increasing involvement in international operations across the borders of countries into different geographic locations or markets (Johanson, Vahlne 1977, Ghoshal 1987, Welch and Luostarinen, 1988, Hitt, Hoskisson, Kim 1997, Hitt, Ireland, Hoskisson 2007 ). In most cases, the focus is on the expansion of foreign sales. However, it is also important to consider the internationalization of manufacturing or international manufacturing diversification defined as “the strategy of locating production activities in foreign jurisdictions that are relatively diverse in terms of legal structures, national cultures, and ways of doing business” (Lampel, Giachetti 2013). Although the extent of a firm’s dependence on its international operations may generate more organizational complexity and costs, it rises benefits as well. Many drivers can lead a company to realize a production plant abroad. On the supply side, the availability of lowcost resources and privileged access to raw materials. On the demand side, proximity to markets and lower transportation costs. With regard to the institutional context, the most favorable legal frameworks and business services or the presence of incentives systems Assistant Professor of Management – University of Messina, Department of Economics, Management, Environmental and Quantitative Methods. e-mail: tlarocca@unime.it 1 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 and financial incentives. With reference to technological issues, the ability to enhance the activity of research and development due to its proximity to research centers, universities and technology centers. At the same time, the construction of a plant abroad is an expensive investment, and often irreversible, with considerable risks, both in terms of economic and financial risk, country risk, business risk, and contractual risk. Therefore, the presence of benefits and costs associated with the internationalization of production renders controversial the effect on firm performance. In fact, depending on the prevalence of costs and risk compared with the potential benefits, there could be a positive or negative relationship between internationalization of production and firm performance. Several studies have examined the phenomenon of internationalization and wide range of literature is devoted to this topic. However, about its implications on firm performance, the results are mixed. Some scholars have found a positive relationship (Delios, Beamish 1999, Hitt et al. 2006), others negative (Denis et al. 2002, Geringer et al. 2000), or Ushaped (Lu, Beamish 2001), or inverted U-shaped (Geringer et al. 1989, Hitt et al. 1997), or even no relationship at all between internationalization and firm performance (Dess et al. 1995, Morck, Yeung 1991). The objective of this paper, based on a sample of Italian firms over a very extended period of time, 1976-2012, is to investigate the effects of both internationalization and international manufacturing diversification on firm performance, considering foreign sales and foreign production. The originality of the paper concerns the focus, not just interested on the general effect of internationalization on firm performance, but sorting this effect according to different macro-geographic areas the firm’s activities is related with. It is possible that previous controversial results are based on the lack of the due consideration for the geographical location of foreign sales and of foreign plants. The impact of internationalization and international manufacturing diversification on firm performance appears to be affected by context-specific factors related to the geographical macro-area where the firm sells and where the production plants is located. In North American there is a negative relationship between foreign sales and firm performance, while in Europe and in Asia there is a positive effect. With regard to foreign production plants, the analysis shows a negative effect on firm performance in Asia, instead the results are mixed in North America and in Europe. The paper is structured as follows. The next section presents the main theoretical aspects of the relationship under study and describes the research hypotheses. The third section presents the empirical analysis, data, methodology, analysis models and variables used. The fourth section reports the results of empirical verification. The last section concludes the work by suggesting possible managerial implications and future research. 2. Literature Review and hypotheses An overview of the literature on the relationship between internationalization and firm performance for the last 30 years reveals a set of heterogeneous and conflicting results. According to some authors the mixed results of the studies are related to the different extension of the time periods, the different institutional and industrial contexts in different economies analyzed (Gaur, Kumar 2009). Other scholars attribute the difference in results in an incomplete conceptualization of the benefits and costs of firm internationalization (Contractor et al. 2003, Lu, Beamish 2004). Some studies consider mainly the nature of the relationship between internationalization and firm performance, without taking much attention to country-specific factors (Geringer, Beamish, Dacosta 1989, Tallman, Li 1996). Other studies focus on the influence of moderating factors on the relationship between internationalization and firm performance 2 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 (Hitt et al. 1997, Kotabe et al. 2002, Ramaswamy 1995). Other studies explore the relationship between internationalization and performance in different countries and contexts, institutional, cultural, and industrial (Capar, Kotabe 2003, Nahum 2004). According to the institutional perspective, institutions define the rules of the game, firms are embedded in a broader context, which encourages and induces firms to follow some strategies (North 1990). Regarding the effect of internationalization on firm performance, some contributions adopt the internal capital market perspective. According to Desai, Foley and Hine (2004) the creation of an internal capital market confers important advantages to multinational companies compared to domestic firms, especially considering countries with poorly developed financial market and/or limited investor protection. The subsidiaries can meet their financial needs through loans from parent companies. In addition, the internal capital markets cushion the impact of adverse economic and financial conditions existing in other contexts, such as in the case of host countries with more capital controls (Desai et al. 2004). The ability to substitute external funds with internal funds allows multinational corporations to take advantage of opportunities not available to local competitors, with a more limited access to global capital markets. The international diversification of manufacturing could generate a positive impact on firm performance through economies of scale and scope, specific advantages of location, synergistic effects. Some studies indicate that there are benefits related to the shift of manufacturing operations in foreign countries (McLaren 2000, Ritter, Sternfels 2003, Lampel, Giachetti 2013). The internationally diversified companies, in terms of production, can gain competitive advantage by exploiting the differences of national resources (Teece 1986), can gain greater bargaining power thanks to multinational network and greater economies of scale, scope and learning (Kogut 1985, Meijboom, Vos 1997). Moving manufacturing plants in foreign locations, it is possible to reduce the costs of production and logistics (Lawrence, Hottenstein 1995, Naor et al. 2010, Vereecke, Van Dierdonck 2002). In light of this perspective, the following hypothesis is formulated. Hypothesis 1a: There is a positive effect of internationalization and international manufacturing diversification on firm performance. Other empirical studies highlight the problems of coordination between the different geographical markets. The increase in the size of the geographically diversified company can generate managerial difficulties in relation to the increase in the cost of governance and coordination (Stein 1997). Market imperfections in emerging economies may increase the potential agency costs associated with the international diversification (Li, Wong 2003); greater information asymmetry could allow the management and major shareholders to more easily take advantage of the company for their own purposes. Agency theory motivates the entry of firms in international markets as an opportunistic choice of manager. Kim and Mathur (2007), Denis et al. (2002), Doukas and Travlos show that high agency costs may have an adverse effect on the firm market value when there is news of a firm’s decision to acquire a foreign company. Firms that expand the productive activities abroad support higher costs of governance and transaction, which can erode the benefits arising from the internationalization of production (Lessard, Lightstone 1986, Sundaram, Mishra 1991, Sundaram, Black 1992, Ritter, Sternfels 2003). Hitt et al. 1997, Geringer et al. 1989 highlight the costs of monitoring of the manager and the coordination between the parent and foreign production activities. Some authors emphasize the impact of cultural distance and language differences with problems related to communication between the parent company and subsidiaries (Mollica et al. 2001, Stratman 2008). The following hypothesis is formulated. 3 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 Hypothesis 1b: There is a negative effect of internationalization and international manufacturing diversification on firm performance As the level of market integration varies from country to country and / or from industry to industry, the benefits (or losses) resulting from an international diversification strategy, could also depend on the country or industry objective of the firm. The alignment between business strategy and institutional context is a central theme in management literature (Astley and Van de Ven 1983, Khanna and Palepu 1997, Lengnick-Hall and Wolff 1999, Courtney 2001). According to Khanna and Palepu (1997) the lack of product markets consolidated, efficient financial markets and labor markets (“market conditions inefficient”), the lack of an efficient enforcement and legislative system (“institutional behavior uncertain”), produce serious implications for business strategies in the international field. Even more, developed compared to developing areas can differently affect the value added provided by internationalization of the firm’s activities. Therefore, it is important to assess the institutional context of the different foreign countries when the company decides to expand abroad. Hypothesis 2: the impact of internationalization and international manufacturing diversification on firm performance is affected by context-specific factors related to the area where the firm sells and where the production plants is located. With regard to structural change in global manufacturing systems and international trade, a strand of literature focuses on aspects called unbundling, fragmentation, offshoring, global value (supply) chains (Feenstra 1998, Grossman, Rossi-Hansberg 2006 and 2008, Baldwin Robert-Nicoud 2007 and 2010). Grossman and Rossi-Hansberg (2006 and 2008) suggest a conceptual systematization: from trade of finished goods (trade-in-goods) in exchange of tasks necessary to the production of goods (trade-in-tasks). The manufacturing process of a product is a set of tasks to be carried out in different parts of the world; the enterprise relocates a task in the country in which they are lower production costs and transaction (offshoring). Many goods are the result of “global production chains” (global supply chains) in which firms from different countries add valuable pieces. The global value chains are configured as a channel for rapid transmission of real and financial shocks: a decline in demand for final goods is reflected immediately on that of intermediate goods. According to Baldwin (2009), the collapse in international trade in 2008-2009 was indeed caused by the internationalization of value chains. This probably would have facilitated the spread of the international recession that followed the global financial crisis (Cattaneo et al. 2010). In turn, the crisis could have accelerated the phenomenon of the new globalization, stimulating productive organizations to seek more detailed and relocation cost-saving (Accetturo et al. 2011). Hypothesis 3: internationalization and international diversification of manufacturing during the recent financial crisis has led to a deterioration of firm performance. 3. Methodology, data and models 3.1 Sample The data used in the empirical analysis are extracted from the annual report “Research & Studies” by Mediobanca. The database includes information on a vast and reliable sample of leading businesses based in Italy. To our knowledge, the Directory at hand is the only 4 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 database of Italian firms containing details on the amount of foreign macro-areas where the firms have their manufacturing plants. The sample used for the study consists of 262 medium-to-large enterprises with registered office in Italy. It is an unbalanced panel that covers a time period of 37 years, 1976 to 2012. The sample is composed of both companies operating exclusively in Italy, defined domestic firms, and internationalized companies that have expanded their sales and their investments abroad, through the establishment of manufacturing facilities. 3.2 Models and variables To test the hypotheses two main regression models are used in the empirical analysis, considering different proxy of internationalization (in terms of international trade activities and international manufacturing diversification). The Model A considers firm performance as a function of internationalization in terms of foreign sales as it follows: Performanceit = f (Internationalit, control variables) The Model B considers firm performance as a function of internationalization in terms international manufacturing diversification as it follows: Performanceit = f (Int. Manufacturing Div, control variables) Two firm performance measures are used, alternatively, as dependent variable. Consistent with most studies of the relationship between internationalization and firm performance (Daniels, Bracker 1989, Haar 1989, Ramaswamy 1995, Gomes, Ramaswamy 1999, Li 2007), and with previous studies that specifically investigate the manufacturing strategy– financial performance relationship (Demeter, 2003; Kim, Arnold, 1993; Tunalv, 1992; Vickery et al., 1993; White, 1996), return on assets (ROA) was used as performance measurement. It measures the efficiency with which assets are used and it is calculated as the ratio of operating income to total assets. The ROA allows to obtain information on the operating profitability of the company, before considering the fiscal and financial components. In addition, it is also used the Cfroi (cash flow return on investment), calculated as the ratio of EBITDA to total assets. It is another index that considers just the core business, before interest, taxes, depreciation and amortization. With regards to internationalization in terms of foreign trade the following measures are used. ForeingSales/Tot.Sales is the ratio of foreign sales to total sales of the company (FSTS) and indicates the dependence on sales from international markets. This ratio is the measure most commonly used in studies concerning the impact of internationalization on corporate results (Grant et al. 1989, Geringer et al. 1989, Sullivan 1994, Tallman, Li 1996, Li 2007). Herfindal_ForeingSales is the Herfindahl-Hirschman concentration index as measure of the level of internationalization (Bühner 1987). Sales abroad are organized according to six main areas: North America, Central and South America, Europe, Africa, Asia, Oceania. In the sample the information concerning the foreign countries in which firm have located their operations were not available. Mediobanca’s database provides information about six macro-geographic areas pertaining the firm’s international expansion. Concerning the international manufacturing diversification measure, the following variables are used as. Int. Manufacturing Div. is a dummy that takes the value of 1 when the firm has at least one manufacturing plant abroad, 0 when all its production is concentrated in Italy. ForeignPlants/Tot. Plants indicates the percentage of manufacturing plants abroad owned by the company (McGrath, Bequillard 1989, Ramaswamy 1993, Kim et al. 1993, 5 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 Contractor et al. 2003), it is calculated as the ratio of the numbers of foreign plants on total production plants (both in Italy and abroad). The following control variables are used in the analysis. Growth opportunity measured by the annual percentage change in sales. The decision to expand abroad can be justified by the objective to exploit growth opportunities (Jose et al. 1986) in order to create value for the company. Kim et al. (1993) argue that firms expanding into the international arena have opportunities to improve their performance, with particular reference to the possibility of achieving economies of scale and scope and the opportunity of learning from overseas operations. Leverage measured as total debt over total assets. According to Shapiro (1978) the internationalization allows firms to diversify cash flow, reducing the risk of failure and allowing a higher level of debt. Other authors (Lee and Kwok 1998) argue that internationalization may lead to the high agency costs and low levels of debt. Tangibility represents the tangible assets of the company and it is measured by the ratio of property, plant and equipment to total assets. This variable affects the ability of companies to invest in strategic projects abroad. Size is the natural logarithm of total assets, to compare the differences in size of the companies analyzed. Larger sizes allow the company to be more competitive through economies of scale, learning economies, economies of scope and flexibility (Kogut 1990). The size of firms is a prerequisite correlated with the decision to expand internationally; the larger the size of the firm, the greater the propensity to invest abroad (Cavusgil, Bilkey Tesar 1979, Cavusgil, Nevin 1981). Ownership is the percentage of shares held by the main shareholder, it can influence the choice of international diversification. Cash holding is the amount of equity cash held by businesses. The company may invest the available funds in complex projects, such as those related to the internationalization. Dummy family, listing and crisis are equal to 1, respectively, if the company is related to a family business, if the company is listed, and if the analysis considers the years subsequent to 2008 as a period of crisis; equal to 0 otherwise. Dummy industry is related to the sector in which the company operates. The analysis considers the following sectors: food, textile and leather, wood and paper products, publishing, oil and fuels, chemicals and rubber, mineral processing, metallurgy, mechanical engineering, electronics and transport equipment; other industries, utilities, construction, transportation and communication. 4. Findings 4.1 Descriptive statistics The values for the mean, standard deviation, minimum and maximum for the variables considered in the analysis are shown in Table 1. 6 Proceedings of 3rd European Business Research Conference 4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7 Table 1: Descriptive statistics Variables (1) Mean (2) SD (3) Min (4) Max ForeignSales/Tot. Sales 0.372 0.285 0 0.981 Herfindal_ForeingSales 0.186 0.211 0 0.990 D_Int. Manufacturing Div. 0.534 0.499 0 1 ForeignPlants/Tot.Plants 0.160 0.241 0 1 Roa 0.074 0.082 -0.409 0.665 Cfroi 0.129 0.097 -0.245 0.898 MTB 1.533 0.781 0.312 6.182 Leverage 0.440 0.231 0.006 0.970 Tangibility 0.368 0.172 0.033 0.871 Size 20.42 1.451 16.17 25.63 Growth Opportunity 0.118 0.515 -0.922 15.41 Cash Holding 0.075 0.088 0.001 0.470 Ownership 0.646 0.261 0.050 1 D_Family 0.582 0.493 0 1 D_Listing 0.397 0.489 0 1 D_crisis 0.124 0.330 0 1 More than half of the sample (58.2%) consists of firms with family ownership and almost 39.7% are listed companies. In addition, the firms in the sample show a high interest in international expansion. Model A considers the percentage of foreign sales of each company. The model B considers the settlements production facilities in foreign markets and, therefore, the analysis considers companies that have embarked on a strategy of international diversification of manufacturing. 53.4% of the observations have at least one manufacturing plant abroad. The correlation matrix, not reported, shows that multicollinearity problems are negligible given the absence of significant correlations between variables that could affect the validity of the econometric results. It was also used, although the table is not reported, the variance inflation factors test (VIFs). The maximum VIF that results from any of the models is 1.74, which is far below the generally employed cut-off of 10 (or, more prudently, 5) for regression models. 4.2 Empirical results Table 2 reports the results considering the relationship between foreign sales and firm performance, columns (1) to (4), and the relationship between international manufacturing diversification and firm performance, columns (5) to (8). 7 Variables Table 2: Relationship between foreign sales and ROA (Model A) and between foreign plants and firm performance (Modello B) Model A Model B (1) (2) (3) (4) (5) (6) (7) Roa Roa Cfroi Cfroi Roa Roa Cfroi ForeignSales / Tot.Sales 0.039*** (0.002) Herfindal_ForeingSales 0.040*** (0.003) 0.036*** (0.002) 0.034*** (0.005) International Manufacturing Div. 0.012*** (0.003) Foreign Plants/Tot. Plants Growth Opportunity Leverage Tangibility Size Ownership Cash Holding D_Family D_Listing D_Crisis Observations R-squared Number of id Industry FE Year FE 0.015*** (0.000) -0.076*** (0.000) -0.035** (0.014) -0.011*** (0.001) 0.005 (0.461) 0.039** (0.037) -0.028*** (0.005) 0.008 (0.174) -0.026** (0.023) 2,804 0.123 234 Yes Yes (8) Cfroi 0.015*** (0.000) -0.072*** (0.000) -0.034** (0.016) -0.013*** (0.000) 0.005 (0.519) 0.035* (0.056) -0.032*** (0.001) 0.009 (0.134) -0.026** (0.019) 0.017*** (0.000) -0.091*** (0.000) -0.010 (0.530) -0.028*** (0.000) 0.004 (0.631) 0.012 (0.536) -0.048*** (0.000) 0.005 (0.466) -0.018 (0.164) 0.017*** (0.000) -0.087*** (0.000) -0.008 (0.611) -0.029*** (0.000) 0.003 (0.663) 0.007 (0.715) -0.053*** (0.000) 0.005 (0.417) -0.017 (0.153) 0.015*** (0.000) -0.071*** (0.000) -0.040*** (0.003) -0.012*** (0.000) 0.001 (0.881) 0.032* (0.064) -0.031*** (0.001) 0.001 (0.854) -0.026** (0.017) 2,867 2,804 2,867 2,987 0.124 0.138 0.138 0.115 238 234 238 243 Yes Yes Yes Yes Yes Yes Yes Yes p-value in parenthesis *** p<0.01, ** p<0.05, * p<0.1 0.011** (0.011) 0.016* (0.067) 0.016*** (0.000) -0.084*** (0.000) -0.033*** (0.007) -0.011*** (0.000) -0.011* (0.078) 0.026* (0.089) -0.030*** (0.000) -0.009* (0.096) -0.032*** (0.007) 0.017*** (0.000) -0.086*** (0.000) -0.012 (0.422) -0.027*** (0.000) 0.000 (0.993) 0.009 (0.624) -0.051*** (0.000) -0.003 (0.674) -0.018 (0.128) 0.012 (0.119) 0.018*** (0.000) -0.100*** (0.000) -0.006 (0.679) -0.030*** (0.000) -0.013* (0.061) 0.003 (0.885) -0.050*** (0.000) -0.014** (0.022) -0.023* (0.086) 2,462 0.156 234 Yes Yes 2,987 0.128 243 Yes Yes 2,462 0.177 234 Yes Yes 9 Concerning the relative magnitude of the export sales (Model A) expressed by the variables ForeignSales/Tot.Sales and Herfindahl Foreign Sales, a positive impact of internationalization on performance is highlighted in table 2 columns (1) to (4), both considering the level of concentration (or dispersion) of the foreign sales and the increasing concentration (or decreasing dispersion) in foreign sales on Roa and Cfroi. With regards to the effect of international manufacturing diversification on firm performance (Model B), considering the variables Int. Manufacturing Div. and ForeignPlants / Tot.Plants a positive effect results as well (table 2 columns (5) to (8)). These findings confirm the hypothesis 1a relative to the positive effect for the company to increase production establishments abroad. Tables 3, 4 and 5 show the analysis results of the effect of internationalization of sales and international diversification of production on firm performance, considering the macro geographical areas where the firm obtains revenues and the foreign geographic areas in which the firm has production plants. This classification allows us to consider the environmental differences related to the macro-environment (economic, social, cultural, physical, technological, demographic, cultural and political) and the sector (customers, suppliers, substitute products, competitors). Table 3 shows the results of the analysis of foreign sales based on the continents the revenues are realized. The table reports a negative relationship between exports in North America and the financial performance of Italian firms. Instead, this relationship is positive considering sales in Europe, and Asia. The results presented in Table 3 confirm the hypothesis 2, so that the impact of internationalization on firm performance depends on the country in which the firm is being internationalized. There is a negative relationship in developed countries such as North America. Instead, in emerging markets like Asia this relationship is reversed; in these cases, companies could take advantage of market imperfections, typical of emerging economies, to their own advantage. Selling products in North America, although leading to benefits is very expensive, and this analysis leads to saying that the costs of selling products in that macro geographical area are greater than the benefits. Instead, it is profitable to sell in Europe, as well as enter into emerging markets in Asia. 10 Tab. 3: Foreign sales distinct on the basis of macro geographical area (model A) Variables NorthAmericanSales / Tot.Sales SouthAmericanSales / Tot.Sales EUSales / Tot.Sales AsianSales / Tot.Sales AfricanSales / Tot.Sales OceanianSales / Tot.Sales Growth Opportunity Leverage Tangibility Size Ownership Cash Holding D_Family D_Listing D_Crisis Observations R-squared Number of id Industry FE Year FE (1) Roa (2) Cfroi -0.078** (0.029) 0.086 (0.428) 0.035** (0.012) 0.088* (0.075) -0.004 (0.980) -0.808 (0.603) 0.015*** (0.000) -0.072*** (0.000) -0.034** (0.016) -0.012*** (0.001) 0.003 (0.645) 0.034* (0.058) -0.036*** (0.000) 0.009 (0.121) -0.027** (0.020) -0.090** (0.021) 0.041 (0.729) 0.032* (0.054) 0.147*** (0.006) -0.036 (0.828) -1.271 (0.450) 0.017*** (0.000) -0.087*** (0.000) -0.007 (0.636) -0.028*** (0.000) 0.002 (0.786) 0.007 (0.709) -0.055*** (0.000) 0.005 (0.437) -0.018 (0.153) 2,867 0.124 238 Yes Yes 2,867 0.139 238 Yes Yes Tab. 4: Relationship between Dummy production, based on macro geographical area, and firm performance (model B) Variables D_Prod. North America D_Prod. Central&South Amer. D_Prod. Europa D_Prod. Asia D_Prod. Africa D_Prod. Oceania Growth Opportunity Leverage Tangibility Size Ownership Cash Holding D_Family D_Listing D_Crisis Observations R-squared Number of id Industry FE Year FE (1) Roa (2) Cfroi -0.010* (0.058) 0.001 (0.830) 0.010** (0.013) -0.017*** (0.001) 0.016** (0.026) 0.023* (0.077) 0.013*** (0.000) -0.075*** (0.000) -0.038*** (0.002) -0.015*** (0.000) -0.010 (0.105) 0.046*** (0.003) -0.031*** (0.000) -0.003 (0.634) -0.025** (0.018) -0.010* (0.095) -0.000 (0.954) 0.009** (0.039) -0.022*** (0.000) 0.020** (0.014) 0.012 (0.402) 0.014*** (0.000) -0.089*** (0.000) -0.002 (0.875) -0.032*** (0.000) -0.012* (0.092) 0.030* (0.077) -0.052*** (0.000) 0.002 (0.775) -0.016 (0.162) 2,567 0.161 236 Yes Yes 2,567 0.186 236 Yes Yes Tab. 5: Relationship between the number of foreign plants, based on macro geographical area, and firm performance (model B) Variables NorthAmericanPlants SouthAmericanPlants OtherEUPlants AsianPlants AfricanPlants OceanianPlants Growth Opportunity Leverage Tangibility Size Ownership Cash Holding D_Family D_Listing D_Crisis Observations R-squared Number of id Industry FE Year FE (1) Roa (2) Cfroi 0.114** (0.019) -0.026 (0.587) -0.057* (0.086) -0.143** (0.030) 0.057 (0.622) -0.061 (0.834) 0.025* (0.066) -0.080*** (0.000) -0.014 (0.661) -0.036*** (0.000) -0.012 (0.548) -0.039 (0.400) -0.015 (0.528) 0.013 (0.373) 0.056 (0.253) 0.122** (0.044) -0.027 (0.649) -0.065 (0.110) -0.149* (0.068) 0.142 (0.322) -0.171 (0.636) 0.035** (0.036) -0.117*** (0.000) 0.066 (0.104) -0.078*** (0.000) -0.008 (0.763) -0.066 (0.247) -0.023 (0.434) 0.020 (0.280) 0.082 (0.178) 572 0.278 148 Yes Yes 572 0.302 148 Yes Yes p-value in parenthesis *** p<0.01, ** p<0.05, * p<0.1 11 Table 4 and 5 show the results relative to the relationship between dummy production and number of foreign plants, based on the macro geographical areas, and firm performance. The analysis shows a negative effect on firm performance in Asia, instead the results are mixed in North America and in Europe. To realize a production plants in North America is expensive, with a negative effect on performance, while, vice versa, increasing the numbers of plants shows to have a positive effect. By contrast, to have a production plants in EU is positively related to performance, while increasing the numbers of plants has a negative effect. To have or to increase the production plants in Asia has a negative effect on firm performance. 5. Conclusions This study shows, as a general output, the existence of a positive relationship between internationalization, both in terms of foreign sales and manufacturing plants, and firm performance. As main contribution of the paper, results concerning the analysis for macro geographical areas of the relationship studied are provided. The impact of internationalization and international manufacturing diversification on firm performance appears to be affected by context-specific factors related to the macro geographical area where the firm sells and where the production plants is located. There is a negative relationship between internationalization and firm performance in the North American continent, for the expansion of trade, and in Asia, with regard to the expansion of production. From the analysis of foreign sales based on macro geographical areas there are major advantages arising from trade internationalization in Europe, Asia and South America. In North American there is a negative impact of foreign sales on firm performance, while in Europe and in Asia there is a positive effect. With regard to foreign production plants, the analysis shows a negative effect on firm performance in Asia, instead the results are mixed in North America and in Europe. 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