Host country institutional diversity and MNE performance persistence

Real options theory is applied widely to the study of MNEs’ international expansions. This stream of research views the MNE as a network that incorporates a portfolio of options to maximize return in changing environmental conditions (Kogut & Kulatilaka, 1994). In this study, we examine whether and how flexibility benefits of multinationality influence MNEs’ ability to sustain superior performance. From a real options valuation perspective, our findings indicate that the composition of the MNEs’ affiliates’ portfolios influences aggregate value of individual options. We empirically test our theoretical framework using a comprehensive panel dataset of 134 U.S. manufacturing MNEs and their foreign affiliates from 2004 to 2012. Our findings suggest that institutional diversity of the host country portfolio moderates the relationship between multinationality and superior performance persistence, and the effect shows an inverted U-shape.