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‘Misfits’ DO try to fit: Deviations from firm-specific optimal multinationality and subsequent market entry or exit in US law firms

K. Skylar Powell and Eunah Lim

Journal of Business Research, 2018, vol. 82, issue C, 141-148

Abstract: Transaction cost and internalization theory research has demonstrated that ‘misfit’ firms, which deviate from firm-specific optimal levels of multinationality, experience performance decreases. However, we do not know if these firms subsequently adjust their multinational footprints to improve performance. This analysis attempts to fill this gap in the literature, using data in the context of large US law firms from 2003 through 2015. Results indicate that firms with insufficient multinationality relative to their firm-specific optimal levels are more likely to enter new foreign markets in a subsequent period. Additionally, firms with excessive multinationality relative to their firm-specific optimal levels are more likely to exit markets in a subsequent period. These results contribute to theory by showing that maintaining firm-specific multinationality is a continuous adaptive process. Results also highlight managerial benefits to continuously evaluating the efficiency of how international interdependencies are organized in response to changing environments and firm factors.

Keywords: Transaction cost economics; Multinationality; Law firms; Market entry; Market exit (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jbrese:v:82:y:2018:i:c:p:141-148