Numerous studies have been undertaken on corporate and international diversification. While most early research indicates the existence of a diversification discount, later research reports mixed results (both premiums and discounts). Recent research has even found a U-shaped, an inverted U-shaped, or an S-shaped relationship between international diversification and performance. This paper suggests a major reason for these mixed results is that the success of international diversification is dependent on specific industry and/or firm characteristics. Therefore, by looking at all firms and industries in aggregate, past diversification studies have been undertaken at too aggregate a level to understand how firm and industry specific issues affect international diversification. This study hypothesizes that the success of international diversification is dependent upon industry and firm specific advantages such as tacit knowledge, information technology capability, marketing capability, and international experience. Industries/firms that possess a significant competitive advantage in one or more of these areas will likely have an international diversification premium, while those that do not will likely have an international diversification discount. The ability of firms to generate a competitive advantage in these areas varies significantly across industries. Therefore, firms in certain industries are likely to have an international diversification premium, while others will likely have an international diversification discount.;The findings of this study do indicate that in the 30 industry sectors tested, 18 have an international diversification premium while 12 have an international diversification discount. This suggests that international diversification premiums/discounts by industry to exist. The firm specific advantages of tacit knowledge, information technology capability, and marketing capability were found to be positively correlated with firm performance for international firms, while the results of international experience with firm performance were not significant. |