The effect of international diversification on investment efficiency

Alireza Askarzadeh, Kenneth Yung and Fatemeh Askarzadeh

Research in International Business and Finance, 2025, vol. 73, issue PB

Abstract: Although internationalization research has proliferated recently, scant attention has been devoted to understanding why international expansion decreases firm value. By applying the concepts of transaction cost economics and agency theory, we propose that the impact of internationalization on investment efficiency—a critical determinant of international strategy success—is significant. Internationalization often exacerbates information asymmetry and complicates effective monitoring leading to diminished investment efficiency. Moreover, this relationship is moderated by international experience, the intensity of industry competition, and the stage of the firm's lifecycle. An Ordinary Least Squares regression analysis of a US sample with 49,168 firm-year observations between 1989 and 2022 supports our predictions. This study not only advances internationalization theories but also provides a fresh perspective on the performance implications of international expansion, underscoring the organizational and industrial conditions that influence the success of internationalization efforts.

Keywords: Investment efficiency; Internationalization; Firm performance; Overinvestment; Underinvestment; Information asymmetry (search for similar items in EconPapers)
JEL-codes: D82 F21 F23 G31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:73:y:2025:i:pb:s0275531924004343

DOI: 10.1016/j.ribaf.2024.102641

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