Market Size, Legal Institutions, and International Diversifi cation Strategies: Implications for the Performance of Multinational Firms

and Key Results 0 Recognizing that country-specifi c resources are generally diffi cult to imitate or diffuse across national boundaries, we propose that home country conditions are key determinants of fi rms’ strategic choices. By embracing insights from both institutional economics and resource-based view, we identify two country-level environmental constituents – domestic market size and legal institutions – to examine how these resources infl uence multinational fi rms’ international diversifi cation strategies. We further propose that home country legal institutions moderate the link between geographic diversifi cation and fi rm performance. 0 These hypotheses are tested with historical data on 435 multinational fi rms based in 13 developed economies. Results suggest that a multinational fi rm’s degree of international diversifi cation has a U-shaped relationship with the size of the fi rm’s domestic market; fi rms from civil law countries are more likely to pursue international diversifi cation than their counterparts from common law countries; and the effect of international diversifi cation on fi rm performance was more pronounced among MNCs from civil law countries.