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Why Do Multinational Firms Exist? A Theory Note About The Effect of Multinational Expansion on Performance and Recent Methodological Critiques


Correspondence to: Farok J. Contractor, Rutgers Business School, Rutgers University, 1 Washington Park, Newark, NJ 07102, U.S.A. E-mail:


This theory note offers a detailed microanalysis of the benefits, costs, and limits to international expansion to explain why multinational firms exist, in response to critiques which ask whether any generalizable theory relationship exists between firm performance and its degree of multinationality. Some even question the validity of the entire multinationality-performance field. These critiques fly in the face of the fact that multinational firms exist, thrive, increase in number, and are generally regarded as earning superior profits versus their purely domestic counterparts. This note proposes alternative methodological reasons for the seemingly contradictory and confusing results of past empirical studies over 30 years, indicates directions for future research, and calls for a contingent variable approach to empirical studies in the field.