How much does home country matter to corporate profitability?

This paper provides researchers in the fields of international business and strategic management with information on the relative importance of home-country, industry, and firm influences on corporate profitability for firms with varying degrees of multinationality. The analysis relies principally on the Compustat Global reports for 1993–2003. The findings demonstrate that home-country and industry effects are more important to domestic firms than to multinationals. However, home-country influences are important even for firms with high degrees of multinationality. The evidence suggests that multinationals profit from industry-grounded opportunities to distribute activities across the countries in which they operate, but there are tradeoffs associated with internationalization. Multinationals may suffer from less protection afforded by the home-country environment and greater industry-level competition, but gain a broader scope for deploying idiosyncratic, firm-specific advantages through mechanisms enhanced by home-country experience. We conclude that industry effects in single-country studies should be interpreted carefully as influenced by the home countries of the multinational firms that are under study.