A Quasi-experimental Approach to the Multinationality-performance Relationship: An Application to Learning-by-exporting

Abstract

Research summary: This article introduces the propensity score matching method and the difference-in-differences approach as an innovative way to create a quasi-experimental setting. By controlling for endogeneity, these methods more precisely capture the dynamic effect of strategy adoption. When used in tandem, these empirical methodologies can shed light on the multinationality-performance relationship that has generated mixed findings to date, mainly due to methodological limitations. We compare and contrast propensity score matching and the difference-in-differences approach with alternative methodologies that attempt to handle endogeneity, while applying them specifically to the learning-by-exporting hypothesis, a classic case of the multinationality-performance relationship. We find strong evidence that export does indeed improve firm productivity, more so when firms have higher learning opportunities. Managerial summary: Firms increasingly become multinational by pursuing international markets. However, it is not clear whether international strategy really improves firm performance, since the observed positive relationship may be driven by the fact that better performing firms pursue international strategy. This poses an important managerial issue since managers need to be certain about the causal impact of strategic choices. We compare and contrast various methodologies that help establish the causal relationship between international strategy and firm performance. Using a quasi-experimental method, we find strong evidence that international strategy through exporting does indeed improve firm productivity based on learning from exporting activities and, further, that such learning is greater when exporting firms have higher learning opportunities. Copyright (C) 2016 Strategic Management Society.