Firms seek to gain global competitive advantages via strategic international expansion targeting long-term performance improvements. This long-term perspective of the role of internationalization, however, is largely understudied in the literature. Exploring the longitudinal effects of internationalization on the firm is essential to explaining and understanding this widely adopted strategic option. This study adopts a PVARX method and maps out the time-series impact of internationalization on both firm financial returns and risk. These relationships are further explored by examining the moderating effects of firm marketing capability, one of the most powerful drivers leading to market advantages. The results demonstrate that high marketing capability assists international expansion to produce better outcomes over an extended period of time but low marketing capability does not produce these positive outcomes.

Introduction

The adoption of internationalization as a firm strategy has captured considerable attention and has become a fast-growing globalization trend characterized by market expansion, learning synergies, and new business opportunities (Bausch & Krist, 2007; Bianchi & Ostale, 2006; Javalgi & Todd, 2011; Singla & George, 2013). Managers are increasingly realizing the benefits of expanding their firm’s geo-business scope across world markets with the support of internationalized resource sharing, information transfer, and customer reaching activities (Glaum & Oesterle, 2007; Lu & Beamish, 2004; Sharma, 2011). These benefits include both increasing firm performance through improving firm returns or profitability (Lavie & Miller, 2008) and decreasing firm risk (Wagner, 2004). The evaluation of firm performance using return and risk provides a more comprehensive evaluation of firm performance derived from internationalization (Anderson & Reeb, 2003; Galema, Plantinga, & Scholtens, 2008). The prospect of attaining firm benefits through internationalization has prompted academic domains such as management and marketing to extensively examine the contributions of internationalization on firm performance. However, in the literature, the effects of internationalization on firm performance are not consistent. For example, numerous studies find positive influences on firm outcomes, such as earnings, returns, and profitability (Chen & Hsu, 2010; Lavie & Miller, 2008; Zhou, Wu, & Luo, 2007). Yet some researchers suggest that substantial cross-border business presence carries significant risks and creates complexities that eventually reduce the firm’s market strengths (Kwok & Reeb, 2000; Shrader, Oviatt, & McDougall, 2000), while others find that internationalization has a mixed impact on firm performance (Lu & Beamish, 2001; Zahra & Garvis, 2000). These conflicting results may be due to the lack of attention given to the long-term performance effects of internationalization and the lack of consideration given to key moderating factors. Studying these longterm performance effects is best evaluated with a time-series approach. This approach requires a time-related framework rather than concurrent modeling (Efrat & Shoham, 2012). The impact of internationalization on firm performance develops over time and may not appear immediately after a firm enters new markets. Concurrent modeling may lead to inconsistent results because these studies ignore the time effects or embed the time effects differently. Another reason for inconsistent findings may be that firms differ in their ability to manage their markets (Makadok, 2001).