International Dispersion and Profitability: An Institution-Based Approach

This study examines the effect of international dispersion on profitability. We use an institution-based approach to propose that increases in international dispersion lead, on average, to profitability downturns. We also argue that this liability of foreignness will affect multinationals from infrastructure industries to a lesser extent because in these industries: (1) the importance of cultural fit in products is low; (2) firms possess regulatory expertise; and (3) firms have limited aggregation opportunities at the regional level. We test our hypotheses on a panel of Spanish listed firms (1986–2007). Our findings point to a negative linear relationship between international dispersion and profitability, which is flatter for infrastructure multinationals. These results contribute to a more context-based understanding of internationalization that highlights the shortcomings of establishing a dispersed international footprint.