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Archives of Business Research – Vol. 10, No. 7
Publication Date: July 25, 2022
DOI:10.14738/abr.107.12509. Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in
Nigeria. Archives of Business Research, 10(7). 1-19.
Services for Science and Education – United Kingdom
Internationalization Strategies and Performance of Multinational
Companies in Nigeria
Sakiru Ademola Adeleke
Department of Accounting
Babcock University, Ilishan-Remo, Nigeria
Sunday Owolabi
Department of Accounting
Babcock University, Ilishan-Remo, Nigeria
Ishola Rufus Akintoye
Department of Accounting
Babcock University, Ilishan-Remo, Nigeria
ABSTRACT
The challenges of firm performance of international companies and assessment of
corporate strategies have witnessed fundamental changes in literature far beyond
book values. A consideration of comprehensive integration and inadequate overlap
among firm performance drivers, and declining comparative competitive
advantage in the industry where the multinational companies operate are
significantly unsettling. The study adopted an ex-post facto research design. The
survey was conducted across three (3) sectors of the Nigeria Stock exchange with
the population of one hundred and seventy-one (115) companies. The study used a
purposive sampling technique to select the international companies. Hence, a
sample size of sixteen (16) multinational companies is used to investigate the effect
of internationalization and firm performance. Secondary data was adopted for the
study and the data for the study were obtained from the Nigerian Stock Exchange
Annual report; annual reports and financial statements of the selected companies.
Descriptive and inferential (Panel regression analysis) were used to analyse the
data. Hausman test was conducted to determine the choice of model to use between
the fixed effect model or random effect model. The study revealed two models. One
model without control variables and the other with control variable. Model one
shows that internationalization has a significant effect on firm performance of
listed companies in Nigeria revealing an adjusted r square of 0.0913; Wald Stat of
18.30 and the p-value of 0.000 < 0.05. Model two also revealed a significant effect
with an adjusted r square of 0.252, F statistic of 9.93 and p-value of 0.000 < 0.05.
The study, however, concluded that internationalization has a significant effect on
firm performance of listed companies in Nigeria. Therefore, it was recommended
that management of multinational companies should review and re-engineer the
dynamics of export intensity to improve the performance of companies to
efficiently and effectively generate profits using its assets. . The government and
policymakers should reconsider charges and interest rates to accommodate the
loan facilities of the multinational companies. Management should put in place
investment policies that will attract foreign investors in the company which will
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enhance operations and performance. Management should take advantage of their
strength and emerging opportunities to enhance company sales.
INTRODUCTION
Performance has a substantial impact on the market of multinational companies, as companies
around the world increasingly use performance to evaluate their goods and service and
determine how effective the system is. Performance refers to the achievement of the company
in accordance with its set goals. It includes outcomes gained or attained through the
contributions of individuals or groups to the company's strategic goals. The term
"performance" relates to both financial and behavioural outcomes. Performance that includes
both actions and results.
The problematic nature and challenges of firm performance of international companies and
assessment of corporate strategies have witnessed fundamental changes in literature far
beyond book values (Abdi, Li & Xavier, 2020). A consideration of comprehensive integration
and inadequate overlap among firm performance drivers, and declining comparative
competitive advantage in the industry where the multinational companies operate are
significantly unsettling (Akben-Selcuk, 2019; Bangun, 2019). Undoubtedly, firm performance
determination among corporate organizations has fundamental defaults and complexities, as
multidimensional share price and the purchase price of the stock of multinationals
corporations can be influenced by endogenous and exogenous factors (Becchetti, Rocco &
Ambrogio, 2018). The challenges of firm performance in most cases are mere perceptions and
management white-coated branding that lacks a significant basis (Bastic, Mulej & Mira, 2020).
Bollazzi and Risalvato (2018) submitted that investors and shareholders have been misled with
brandished market share at some non-transparent capital markets. While the management of
multinationals in its expertise has no control over exogenous factors that have a significant
impact on firm performance, making firm performance more complicated and problematic
even in most advanced economies (Bardos, Ertugrul & Gao, 2019).
There are equally myriad of studies from the African and other developing economies. For
instance, from the economy of Egypt, Yasmeen (2019), documented that there are problems of
achieving sustainable parameters that will enable companies to attain the desired performance
that will reflect in the firm. The companies offer different performances and results for the
association between international diversification and expected firm value. According to Kim,
Wan, Wang, and Yany (2019), there had been emerging market seems attractive from the
outside, attracting the attention of international investors, because of the large population of
the developing economies, but their current operational dynamics are substandard that most
investors are enthusiastic and high interest deemed in a short period. In Turkey, for instance,
one of the emerging and developing economy is one of the fast-growing capital markets and
young population, however, parameters that drive a sustainable corporate performance that
triggers a robust firm performance is insufficient and political terrorist activities of the
extremist is deeply having a significant negative influence on the corporate organizations
(Akben-Selcuk, 2019; Krajesak, 2020).
Businesses around the world face intense competitive pressure to do so better, faster, and at
lower rates in the changing world that characterizes today's global economy. They need to deal
with an increasing number of environmental issues. Also, improve their ability to acclimatize.
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
Nowadays, consistent performance is the aim of every company, this is because businesses can
achieve growth and make progress (Taouab & Issor, 2019). Firms attempting expansion into
international markets need to marshall the available resources both at home and abroad. This
intention has been carried out by firms globally by adopting an inter-firms network approach
and other forms of collaborative effort that can stretch the frontier of their operation and in
turn, increase productivity (Sun, Price, & Ding, 2018). Across the different industries,
performance measurement has played the main role in keeping in tab with the progress of firms
in achieving the bottom lines. Competition from foreign multinationals has stiffened the profit
margins of the local companies which call for new workable strategies to ensure business
survival, particularly among the African countries. Aside from this, seeking a competitive
advantage to enhance performance among firms has formed a major reason for most of these
firms to embrace internationalization.
Unarguably, the internationalization process could birth an increased firm size which can help
companies in taping into the harvest of scale economies (Altaf & Shah, 2015). Larger firms, just
as older firms have been associated with better efficiency in areas of resource allocation,
particularly in the internalized context where the size increase is not domiciled within the
domestic firm but informed by geo-business expansion. It is not unlikely to have diminishing
marginal productivity where size increase is restricted to the same labor input particularly
within the same business environment. Similarly, the newness of a firm in an industry or
environment exposes it to greater risk than already established firms (Jiang, Kotabe, Zhang,
Hao, Paul and Wang 2020; Carr et. al., 2010). Overall, the initial waiting period has positive
effects on business growth by reducing novelty and foreign liabilities, but waiting too long has
negative effects on business growth by reducing the novelty learning advantage. Firms that
balance the benefits of the novelty learning advantage with the costs of double liabilities of
novelty and foreign are better prepared to develop the market entry capabilities described in
previous work (Carr et al., 2010; Zhou et al., 2010) cited in (Jiaju (Justin) & Williams, 2020). I
conjectured that a company size plays a considerable role in the Internationalization process
as it comes with its attendant scale and scope economies. This firm-specific feature has been
confirmed in the extant literature to be a key driver of performance (Calabrese & Manello, 2018;
Chen & Hsu, 2010; Eren-Erdogmus, Cobanoglu, Yalcin, & Ghauri (2010).). Therefore, this study
seeks to provide insight into the role played by the aforementioned in the relationship between
internationalization and firm performance of selected companies in Nigeria across the three
sectors including, consumer goods sector, financial sector and industrial sector
CONCEPTUAL REVIEW
In this paper, the concept, definition and measurement of the variables used are expressed
below.
Firm Performance
According to Taouab and Issor (2019), they stated that firm performance covers numerous and
various concepts such as growth, profitability, return, productivity, efficiency, and
competitiveness. Firm performance can be achieved through piloting, evaluating, efficiency,
and quality. Verboncu and Zalman (2005) defined firm performance as a specific result
obtained in management, economics, and marketing that gives an organization and its
structural and procedural components competitiveness, efficiency, and effectiveness.
According to Santos and Brito (2017), the concept of firm performance must be distinguished
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from the broader concept of organizational effectiveness. Firm performance has been summed
into three features; Profitability, Growth, and Market value, these aspects complement each
other. Profitability level measures a firm’s past ability to generate a return (Glick, Washburn, &
Miller, 2020).
Export Intensity (EI)
Export intensity is a measure of export activity that helps us figure out how much cash comes
from exporting items made in the United States. Exporting can be regarded as a type of
diversification or a component of it. Exports are one measure of diversification and are a part
of a company's broader diversification strategy. Exporting, on the other hand, is merely one
aspect of a company's diversity (Styles & Ambler, 2004). Many issues may be answered by
measuring and assessing the level of exporting that enterprises engage in an increasingly
globalized environment. What is the role of exporting in today's business?. Export intensity has
been linked to foreign market knowledge, which is a crucial resource for internationalization
(Ellis et al., 2011; Ling-Yee, 2004). The debate over the relationship between export intensity
and firm success, in particular, is the study's starting point and hence at the center of our
research focus. It can be measured or calculated as thus:
EI = ("#$%&'( *+,%- )
/#0+, *+,%-
Foreign Asset to Total Asset (FATA)
Foreign assets comprise the personal and real property. It can be defined as any investment for
which the primary market is outside the stated country and any cash and cash equivalents that
are reasonably necessary to affect the Fund’s transactions in those investments. International
companies in most cases transfer assets from one location to where the assets are needed or
will be better put to more productive use. Difficulties and complex accounting issues do arise
where the corporate is not sincere and the managers have the incentive to perfect discretionary
earnings, thereby assets transfers are treated as a new capital purchase or where new assets
are treated as transfers to achieve a predetermined objective (Mahfuja, Mamun & Amin, 2019).
One of the complications of foreign assets and total assets is the ability of the auditors to outplay
the gamers of the international companies, who are deep into aggressive tax planning strategies
(Laghi, Marcantonio & Valentina & Niccolo 2020). It is expressed as
FATA =(������� ������)
����� ������
Foreign shareholdings to Total Shareholdings (FSTS)
A shareholder, also known as a stockholder, is an individual, company, or institution who owns
at least one share of a company's equity (stock). Shareholders get the rewards of a company's
success because they essentially own it. Increased stock prices or financial profits delivered as
dividends are examples of these benefits (Hayes, 2021). As residual claimants on a company's
profits, shareholders are susceptible to capital gains (or losses) and/or dividend payments.
Shareholders also have specific rights, such as the ability to vote at shareholder meetings to
approve board members, dividend distributions, and mergers. Shareholders may lose their
entire investment if the company goes bankrupt. Hence, foreign shareholder is the change in
capital stock with the same denominators. It's been discovered that investment intensity can
be used as a predictor of future profitability and stock values (Lev and Thiagrajan, 2019). It is
measured as thus:
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
FSTS =(������� ������)
����� ������
Firm Size (FS)
The term "firm size" is commonly used to describe a crucial and fundamental characteristic of
a firm. Firm size can be defined in a variety of ways, including by value contributed, sales, or
the number of employees. Vijh and Yang (2013) gave a list of firm size proxies and their related
coefficients. Their findings showed that the sign and significance of firm size coefficients in
different articles are dependent on the firm size measure utilized. While Vijh and Yang (2013)
argued that firm size measurements should be given more attention, they do not compare the
results from different regressions or undertake a comprehensive review of firm size measures
in the corporate finance literature. In this context, firm size is measured as:
FS = Log of total assets
Board Size (BS)
The size of a board is regarded to be a significant component in affecting the monitoring and
decision-making process, thereby improving firm performance (Larmou & Vafeas, 2010; Fauzi
& Locke, 2012). The total number of directors on a company's board of directors is referred to
as board size. The importance of board size in influencing business success has been
demonstrated in some recent empirical research (Fuzi, Adliana, & Julizaerma, 2016; Alves,
2014). It is suggested that a larger board size initially facilitates key board functions, but
eventually suffers from coordination and communication issues, and therefore board
effectiveness (and company performance) suffers. It is measured as thus:
BS = Number of managers functioning on the board of directors
Firm Age (FA)
The firm's age has been recognized as a significant factor. The age of firms differs and their
performance differs notwithstanding the similarity of industry. The age of a firm is its
accumulated experience and is reflective of learning (Olumide 2010). It is the continuous length
of time often in years that a firm has to be in its current business from when: 1) it was
incorporated or 2) it was listed for listed companies. As firms grow older, their capability to
perform declines. In biology terms, an increase in the age of an organism causes aging which is
a condition associated with declining functioning of the body. It is regarded as thus:
FA = Year of listing
LITERATURE REVIEW
Different scholars have research on related studies on internationalization and firm
performance such scholars include Nguyen, (2017) where he studied the relationship between
the degree of strength of multinationalism and performance using multinational enterprises of
50 years. The study concluded by identifying the six inconsistencies in the literature reviewed
which causes ambiguity in the findings reviewed. The study contributed to the central debates
in the accounting, finance, and management field through the use of systematic review. Similar
study of Purkayastha, Sharma, and Karna (2020) research used a systematic review and
concluded that in the last ten years, In the context of developed economies, theory testing
dominated an international approach. The researchers suggested that the majority of the
antecedents and moderators in the multinationalism and performance relationship are
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anchored within an institutional theory, organizational structure, resource-based view, social
capital, and upper echelon theory.
The study of Dittfeld, (2017) researched multinationality and performance in German firms and
concluded that firms can be of advantage from multi-nationality even in early
internationalization stages and able to manage high steps of complexity in later
internationalization stages successfully. The result also initiated that a moderate positive
relationship between multinationality and future-oriented performance. A similar study was
conducted by Mullen and Luff, (2018) where they examined the relationship between
multinationality and firm performance. The findings revealed that local companies outperform
more than international firms in many circumstances, implying that a firm degree of
multinationality does not consistently affect performance in either a favourable or negative
way.
Sekliuckiene, Jarosiński, and Kozma, (2019) carried out an investigation in Hungary, Poland,
and Lithuania on the level of factors of success at the start-up stage of international new
ventures. The study discovered that three countries sampled focused on ITC business, solid
industry experience of the founders proved to be key in the success of international new
ventures internationalization. Meanwhile, Kolarov and Georgieva (2020) presented a paper on
the determinants of internationalization using primary data obtained from 468 small and
medium entrepreneurial.
In the study of Bryson and Forth, (2018) conducted among the SMEs from 2011 through 2014.
The research was on the impact of management practices and firm performance and concluded
that SMEs are less likely to use formal management practices than larger firms. Cerrato and
Piva, (2021) found that family-managed firms are not significantly different from non-family- managed firms using 1324 Italian manufacturing SMEs. Research conducted by Alayo, Maseda,
Iturralde, and Arzubiaga (2019) found a similar result with that of Cerrato and Piva, (2021
using 191 Spanish family SMEs. The study of D’Angelo, Majocchi, and Buck, (2016) found that
the internationalization level of family SMEs with only family managers is higher when the level
of family ownership is high. The result also found internationalization level of family SMEs that
employ also external managers is higher when the level of family ownership is low.
Loue, (2018) examined the internationalization situation of small and medium-sized
enterprises from the perspective of entrepreneur profiles and competencies using a
quantitative survey from the 283 chief executives. The study found that certain specificities
emerged from the backgrounds, experience, and abilities of entrepreneurs that are
internationalizing the firms. Wimpertiwi, (2018) worked on a similar study and found that
several opportunities and challenges in neighboring countries between the member of the AEC,
for the university that has the start-up or SMEs for being global or international. Consistent
with previous studies of Loue, (2018) who studied the Internationalization of SME enterprises,
Santhosh, (2019) investigated the earliness of SME internationalization and performance. The
study developed a framework by testing through a sample of 102 internationalized in the
Bangalore city region of India. The study, however, found that the age of CEOs and educational
background moderates between early internationalization and performance in the context of
India.
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
Barłożewski and Trąpczyński, (2021) assessed the performance effects of firm-specific
advantages, internationalization degree, and firm size revisited based on the resource-based
view. The study found that firm-specific area does not positively affect firm performance. The
result also found that a weak relationship occurs between firm performance and level of
internationalization. The result obtained for the moderating effect of the internationalization
degree indicated a weak relationship with the novice internationalizes. Baroewski and
Trpczyski (2021) conducted a similar study on internationalization motives and the
multinational-performance link using the case of Polish enterprises. In contrast to predictions
based on typical S-curve research, the study discovered that Polish enterprises have an inverted
U-curve connection.
Belkhir (2009) found that increasing board sizes do not destabilize the firm performance and
there is a positive association between board size and firm performance. Anderson, Sattar,
Reeb, (2004) argued that investors of firms with larger boards believe that the financial
accounting structures of those firms are monitored better, enabling those firms to decrease the
cost of borrowing. Whereas in the literature the moderating role of board size in the
relationship between firm performance and internationalization has been limited. Meanwhile
a study conducted by Akintoye, (2008) on capital structure and firm’s performance using the
Nigerians experience discovered that higher financial leverage does not necessarily lead to a
better firm performance as an increased percentage in tangible assets does not outrightly
indicate better firm performance, as tangible assets with long standing effect may contribute
little or nothing in the short term. Another study conducted by Akintoye, (2007) on enhancing
the performance of the informal sector for the economic development of Nigeria.
Related studies carried out in Nigeria on the banking industry consolidation and financial
performance of selected quoted banks in Nigeria was studied by Owolabi and Ogunlalu, (2013)
found that not all the time that consolidation transforms into good financial performance of
banks and it is not only capital that makes for good performance of banks. Owolabi and
Makinde, (2012) researched on the effect of strategic planning on corporate performance in the
university education and concluded that a significant effect occur between strategic planning
and corporate governance.
Korac Kakabadse et al. (2001), have a higher range of competence and specialist knowledge
than smaller boards, allowing enterprises to create better external ties, which are necessary for
the implementation of a diversification strategy. On the other hand, Tsai & Zheng (2019)
studied the effect of related diversification and firm performance was found to be negatively
moderated by board size, while the effect between unrelated diversification and firm
performance was found to be positively moderated by board size. Furthermore, the findings
suggest that when both linked and unrelated diversification strategies are applied, small boards
benefit Chinese tourism firms.
Kim & Rasheed (2014) identified that board heterogeneity in terms of board tenure and board
functional diversity positively moderates the relationship between unrelated internalization
strategy and firm results, according to the findings. Their research, however, found no evidence
of a connection between board size and related diversification. Furthermore, Park & Jang
(2013) affirmed that past research has not addressed the significance of board size in the
synergy effect in improving firm efficiency. Board directors are often viewed as valuable tools
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when a company pursues growth through internationalization strategies (related or unrelated
diversification). As a result, decisions on internationalization, strategy implementation, and the
consequences for business performance are all directly linked to the board's ongoing advising
and informative communication procedures (Kim & Rasheed, 2014).
Internationalizing at an early age enables companies to take advantage of newness to develop
market penetration capabilities (Autio, George & Alexy, 2011). Bingham, Howell, & Ott, (2019)
stated that younger companies will quickly be integrated new skills, reconfigured firm capital,
and began creating routines or basic rules for internationalization operation thanks to the
learning advantage of newness. The age at which a firm begins internationalization, or its age
at initial international entry, is a theory that states that the younger a firm is when it begins
internationalization, the higher its growth (Sapienza et al., 2006). These rules or routines then
evolve into capabilities for new business entry, allowing the firm to expand even further.
Similarly, firms found themselves drowning as they cannot be engrossed and interpreted
foreign market knowledge (Belotti, Hughes, & Mortari, 2017; Hughes, Morgan, Ireland, &
Hughes, 2014). Also, Bingham et al., (2019) express that firms either fail to develop such a
capability or develop suboptimal routines or rules that restrict the growth benefits of
developing this capability. Firms either fail to create such a capability or develop suboptimal
routines or norms that limit the learning benefit of newness to develop routines for
internationalization and the ability to reconfigure resources to develop a capability for fresh
market entry (Fernhaber, 2013). Because of the high level of ambiguity inherent in the
internationalization phase, certain roadblocks are unforeseeable.
Sorensen and Stuart (2020) concluded that the younger a company is when it first starts up, the
less likely it is to succeed (i.e., the more likely to fail). The survival benefits of waiting (i.e., late
entry) wane after a certain stage, and the relationship reverses (i.e., the older the age at entry,
the less likely the firm is to survive [the greater the failure rate]). In comparison to younger and
less established organizations, the liabilities of the newness perspective suggested that older
and more established firms are more likely to have more developed routines and established
processes, as well as greater access to resources. Coad, Holm, Krafft, and Quatraro, (2018)
investigated a diversity of country contexts, as well as analytical approaches and methods. An
exhaustive review of the literature on age and firms’ performance, and present original
empirical studies focusing on the effects of age on firms’ economic outcomes on the one hand,
and on innovation outcomes on the other hand. Rossi, (2016) presented a systematic review of
the existing literature. The study critically examined the relationship between firm age and
performance provides new insights for executives. Pervan, Pervan, and Urak (2017) studied the
effects of dynamic panel analysis on a sample of 956 companies in the Croatian food industry
from 2005 to 2014. The investigation revealed that aging has a detrimental impact on a
company's performance.
Ural and Acaravci (2016) examined the relationship between specific firm strategic factors e.g.
age, size, capital intensity, and labor intensity and financial performance of quoted Turkey’s
manufacturing firms. Vlachvier and Notta (2008) empirically examined firm growth, size, and
age relationships in a study aimed to confirm Gilbrat’s law of proportionate effect. The view
that firm life expectancy increased with age as only better firms survive, a view empirically
verified by Baker & Kennedy (2002). Profitability and market-to-book ratios diminish with
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
company age, according to Pastor and Veronesi (2003), which they attribute to investors'
learning and a decrease in uncertainty. The age of incorporation and the age of listing is found
to have a negative relationship with stock return variability (Adams, Almeida, & Ferreira, 2015)
and (Cheng, 2008). Chun, Kim, Morck, and Yeung (2008) discovered that as a company gets
older, the likelihood of it sliding out of the top quartile of the industry's sales distribution
increases.
THEORETICAL REVIEW
This research work will review quite many theories considered to be relevant and have an
insight into the literature review. The theoretical consideration was used based on the main
variables formed from the fundamental basis of the research objectives, research questions,
and the research hypotheses of the study. The two theories used in support of this study were
stakeholder’s theory and internationalization theory. The stakeholders' theory supports the
dependent variable, firm performance while the internationalization theory supports the
independent variable, internationalization. The stakeholder theory is used because the theory
illustrates how stakeholders solve the issues of management, approaches to examine
organizational, societal, and individual difficulty. This theory is relevant based on the argument
of Philip, (2003) which described the mutual support of stakeholders as descriptive,
instrumental, and normative. The theory, however, describes as well as explains the
characteristics and the performance or the behavior of firms, which include how companies are
managed, how the board of directors considers corporate constituencies, the way that
managers think about managing, and the nature of the firm itself. The theory was also found
relevant because of the connection that exists between the management of stakeholder groups
and the achievement of the firm in terms of its profitability and goals. More so,
internationalization theory is found relevant to the study because every company desire for
growth and expansion of their business.
METHODOLOGY
The paper used a population of 115 companies listed on the Nigeria Stock Exchange (NSE), the
study selected only three (3) sectors which include consumer goods sector, financial sector and
industrial sector. A sample of sixteen (16) multinational companies was purposively selected
from companies listed on Nigerian Stock Exchange which include Cadbury Nigeria Plc; Nestle
Nigeria, PZ Cussons Nigeria PLC, Nigeria Breweries, Flour mill, Unilever Nigeria Plc, Guinness
Nigeria Plc, FBN Holding (First Bank of Nigeria Limited), Guaranty Trust Bank (GUARANTY),
United Bank for Africa (UBA), Stanbic IBTC Nigeria, Access Banks, Zenith Bank, Union Bank,
Dangote Cement (DANGCEM), and Lafarge Africa (WAPCO). The study used dataset from 2011
to 2020 to investigate the effect of internationalization and firm performance by adopting an
ex-post facto research design. Data were extracted from annual reports and financial
statements of the selected companies.
In this study, internationalization was measured using variables such as export intensity (EI);
foreign assets to total assets (FATA), and foreign shareholding to total shareholding (FSTS) as
the explanatory or the independent variables; the control variables include firm size, board size,
and firm age while the dependent variable, known as the response variable, representing firm
performance. However, the study adopted the use of descriptive statistics (including mean,
standard deviation, minimum, and maximum), bivariate analysis, multicollinearity test, and
inferential method of data analysis (panel regression method which include fixed effect model,
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random effect model, and pooled OLS regression analysis) to investigate the effect of
internationalization and firm performance of listed manufacturing firms in Nigeria. The model
used is stated as thus:
FPit = β0 + β1EIit + β2FATAit + β3FSTSit + μit ----------------------------------------------------------------------------- (1)
FPit = β0 + β1EIit + β2FATAit + β3FSTSit + β4FSit + β5BSit + β6FAit + μit --------------------------------(2)
Where; EI represents export intensity, FATA – foreign assets to total assets; FSTS – foreign
shareholdings to total shareholdings, BS – board size, FA – firm age, and FS – firm size. Also, β0
represents constant of the equation or constant term, β1, β2, β3, β4, β5, β6 = Parameters to be
estimated or Model Co-efficient; and μit = error or stochastic term. The study is expected to have
a positive significant effect as a result of the a priori expectation shown in Table 1 below.
Dependent Variable
Indicators
Expected Internationalization
Components Effect on
Dependent Variables
Decision Rule
Firm Performance Positive (+ve) If p ≤ 0.05, Reject the H0 (null
hypothesis)
Source: Researcher’s A Priori Expectation (2022)
RESULT AND DISCUSSION
The effect of internationalization on firm performance of listed companies in Nigeria is analysed
and explained in this section. The result shows both descriptive and inferential method of data
analysis are displayed and explained accordingly.
Table 2 explains the summary statistics of internationalization (EI; FATA, and FSTS); control
variables (FS, BS, and FA), as well as firm performance. From the result of the analysis displays
in table below, it was deduced that FSTS has the highest mean value of 34.69 with the standard
deviation of 30.68, minimum value of 0.06 and the maximum value of 90.68 respectively.
Among the three proxies of internationalization, FATA is rated the second mean value of 9.88
mean; 18.69 standard deviation; 0 minimum value, and 135.19 maximum value while the last
proxies of internationalization (EI) shows 8.96mean; 10.01 standard deviation; 0 minimum
value, and 41.04 maximum value respectively. Also, among the control variables, FA has
32.19mean; 15.89 standard deviation, 2 minimum value and 56 maximum value while the least
of all the control variable is FS which has the mean value of 8.71, the standard deviation of 0.75,
the minimum value of 6 and the maximum value of 9.94 respectively. The summary statistic of
the dependent variable (firm performance) has the mean value of 8.02, the standard deviation
of 3.76, the minimum value of 0.83, and the maximum value of 18.68.
The bivariate analysis conducted in Table 3 indicates that all the proxies of internationalization
as well as that of the control variables are independence of each other, which satisfies the
assumption of panel regression analysis. In addition, the multicollinearity test which uses both
variance inflation factor (VIF) and tolerance level (1/VIF) is displayed in Table 4 below.
Research has shown that if the VIF is > 10, then there is a problem of multicollinearity and 1/VIF
(tolerance level) is greater than 1, then the problem of multicollinearity also occurs. The
tolerance level is a further test on multicollinearity. Hence, the result shows no problem of
multicollinearity test.
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
Table 2: Summary Statistic
MEAN STD. DEV MIN MAX
FP 8.02 3.76 0.83 18.68
EI 8.96 10.01 0 41.04
FATA 9.88 18.69 0 135.19
FSTS 34.69 30.68 0.06 90.68
FS 8.71 0.75 7.44 9.94
BS 12.79 3.50 6 21
FA 32.19 15.87 2 56
Where FP – firm performance, EI – export intensity, FATA – foreign assets to total assets, FSTS –
Foreign shareholding to Total Shareholdings, FS – firm size, BS – board size, FA – firm age,
std.dev – standard deviation, min – minimum, and max – maximum.
Source: Researcher’s Computation (2022)
Table 3: Correlation Analysis
Variables EI FATA FSTS FS BS FA
EI 1.000
FATA 0.61 1.000
FSTS -0.26 -0.29 1.000
FS 0.46 0.43 -0.43 1.000
BS 0.41 0.36 -0.10 0.52 1.00
FA -0.09 -0.28 0.20 -0.22 0.02 1.00
Where EI – export intensity, FATA – foreign assets to total assets, FSTS – Foreign shareholding
to Total Shareholdings, FS – firm size, BS – board size, and FA – firm age.
Source: Researcher’s Computation (2022)
Table 4: Multicollinearity Test
Variables VIF
VIF 1/VIF
EI 1.89 0.53
FATA 1.91 0.52
FSTS 1.30 0.77
FS 1.91 0.52
BS 1.54 0.65
FA 1.22 0.82
Mean = 1.63
Where EI – export intensity, FATA – foreign assets to total assets, FSTS – Foreign shareholding
to Total Shareholdings, FS – firm size, BS – board size, and FA – firm age.
Source: Researcher’s Computation (2022)
Hypothesis Testing
Model 1 is displayed in Table 4.5below, the result of the analysis explains the most appropriate
estimator among the method of panel data regression analysis (fixed effect model and random
effect model) and pooled OLS, Hausman test was used to confirm the type of model that would
be appropriate for the analysis. The result of the Hausman test showed 6.95 with the probability
value of (0.17) while the chosen significant level is 5% for this study; the Hausman result
supported the consistent of random effect model with GLS regression with Driscoll-Kraay
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standard errors; meaning that the fixed effect model was rejected and the result do not reject
the random effect model. Thus, the study rejected the null hypothesis. However, this was
confirmed considering the p-value of the Test parameter which shows the value of (0.000)
which therefore states that random effect model is consistent and appropriate for the analysis.
The result of the Diagnostic test carried out to ascertain the suitability of the model, the
heteroskedasticity, checking for variations of the residuals of the model; with the probability
value of 0.000 implies that the model is heteroskedastic, meaning that the residuals of the
model are not constant over time, thus the study do reject the null hypothesis. Also, the model
coefficients and residuals were checked for auto correlation problem using Wooldridge test and
with the probability value of 0.00, it revealed that that thee coefficients and the residual of the
model are correlated and thus, there is presence of serial correlation problem in the model. Due
to the presence of heteroscedasticity and serial correlation problems in the model; Model One
was estimated using random effect GLS regression with Driscoll-Kraay standard errors.
Regression Equation Results
FPit = β0 + β1EIit + β2FATAit + β3FSTSit + εit..........................Equation 1
FPit = 8.596 + 0.001EIit + 0.02FATAit - 0.02FSTSit + εit..........................Equation 1
The result of the FP regression analysis investigating the effect of internationalization
(percentage of foreign sales to total sales denoted by export intensity (EI), percentage of foreign
asset to total asset (FATA), and percentage of foreign shareholdings to Total Shareholdings
(FSTS)) on firm performance is presented in Table 4.2.6. The probability of t-test was used in
estimating the significance of the effect of each of the measures of internationalization on FP.
First, the EI probability of 0.973 being greater than 10% chosen significant level, evidenced that
export intensity has no significant effect on firm performance (FP) Similarly, the probability of
FATA of 0.052 showed that percentage of foreign asset to total asset (FATA) insignificantly
affects firm performance. Also, the probability of percentage of foreign shareholdings to Total
Shareholdings (FSTS) of 0.251 implies that FP is insignificantly affected by FSTS at either 1%,
5% or 10%significance level.
Considering each of the proxies of internationalization estimated using the regression
coefficient value. The coefficient of EI of 0.001 means that a percentage increase in the foreign
sales to total sales would yield 0.001 percentage increase in FP. Likewise, the coefficient of
FATA of 0.02 implies that a percentage increase in the ratio of foreign asset to total, asset would
result to 0.02 percentage increase in FP. Moreover, the coefficient of FSTS of -0.02 reflects that
would decrease by 0.02 percent as the percentage of foreign shareholdings to Total
Shareholdings increases by 2 percent. However, the coefficients and the probabilities of the t- test revealed that none of the proxies of internationalization has a significant effect on FP with
FATA and FSTS showing positive contribution while EI show a negative contribution to FP.
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
Table 4.5: Test of Main Hypotheses (Without and With Control Variable)
MODEL ONE MODEL TWO Difference
Random-Effects GLS
Regression with Driscoll- Kraay Standard Errors
Prais-Winsten AR(1)
regression -- iterated
estimates
coef Prob
Variable Coeff Std.
Err
T- Stat
Prob Coeff Std.
Err
T- Stat
Prob
Constant 8.59
6
2.29
8
3.7
4
0.00
5
19.8
4
8.32 2.3
8
0.01
8
+/+.
Inc
Sig/Sig
EI 0.00
1
0.03 0.0
3
0.97
3
0.03 0.03 0.9
9
0.32
3
+/+.
Inc
Insig/Insi
FATA 0.02 0.01 2.2 g
4
0.05
2
0.02 0.01 1.2
6
0.20
8
+/+.
Indif
f
Insig/Insi
FSTS -0.02 0.02 - g
1.2
3
0.25
1
-
0.01
2
0.01
9
-
0.6
2
0.53
4
-/-
.Dec
Insig/Insi
FS - g
0.94
7
0.94 -
1.0
1
0.31
BS - 5
0.07
4
0.09
0
-
0.8
2
0.41
FA - 2
0.08
4
0.04
2
-
1.9
9
0.04
Adj. R2 0.0913 0.252 0
F-Stat/Wald Stat chi2(3) = 18.30 (0.00) F(6, 1153) = 9.93 (0.00)
Hausman Test chi2(3) = 6.95 (0.17) chi2(6) = 3.79 (0.70)
Testparm
Test/LM Test
chi2(1) = 165.26 (0.00) chi2(1) = 174.05 (0.00)
Heteroskedasticit
y Test
chi2(1) = 0.02 (0.00) chi2(1) = 0.04 (0.85)
Serial Correlation
Test
F(1, 15) = 20.367 (0.00) F(1, 15) = 17.886 (0.00)
Pesaran CD Test 3.835 (0.00) 0.818 (0.41)
Dependent Variable: FP @5% significance level
Source: Researcher’s Work (2022)
The result of the Wald Stat of 18.30 with degree of freedom of (3, 156) representing three
independent variables in 160 firm-year observations and having a probability value of 0.00
implies that export intensity, percentage of foreign assets to total assets, and percentage of
foreign shareholdings to Total Shareholdings jointly have significant effect on FP. In addition,
the value of the coefficient of multiple determination of 0.0913 means that the combined
variations in EI, FATA and FSTS resulted into 9.13% variation in FP while the remaining
changes of 91.67% resulted from other factors which are not within the coverage of the model.
The result of the adjusted r square is an indication that the independent variables (FSTS, FATA,
and EI) contribute to the effect of FP with the percent value of 9.13%.
Decision: Considering the value of the Wald Stat of 18.30 with degree of freedom of (3, 156)
representing three independent variables in 160 firm-year observations and having a
probability value of 0.00 being less than the 5% chosen significant level of the study, this study
thus decide that the null hypothesis for model one which states that “internationalization has
no significant effect on firm performance of listed multinational firms in Nigeria” is rejected.
The study, therefore, concluded that “internationalization significantly affect return on firm
performance listed multinational firms in Nigeria”
Model Two
Model 1b shows the result of Prais-Winsten AR(1) regression iterated estimates as the result
obtained from the STATA statistical softwareis displayed in Table 4.2.6 above, the result of the
analysis explains that Prias-Winsten AR(1) regression is the most appropriate estimator among
the method of panel data regression analysis (fixed effect model and random effect model) and
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pooled OLS, Hausman test was used to confirm the type of model that would be appropriate for
the analysis. The result of the Hausman test showed 3.79 with the probability value of (0.70)
while the chosen significant level is 5% for this study; the Hausman result supported the
consistent of meaning that the Prais-Winsten AR(1) regression iterated estimates fixed effect
model was rejected and the result do not reject the random effect model was not used because
of its iteration estimates. Thus, the study rejected the null hypothesis. However, this was
confirmed considering the p-value of the Test parameter which shows the value of (0.000)
which therefore states that Prais-Winsten AR(1) regression iterated estimates is consistent
and appropriate for the analysis.
The result of the Diagnostic test carried out to ascertain the suitability of the model, the
heteroskedasticity, checking for variations of the residuals of the model; with the probability
value of 0.000 implies that the model is heteroskedastic, meaning that the residuals of the
model are not constant over time, thus the study do reject the null hypothesis. Also, the model
coefficients and residuals were checked for auto correlation problem using Wooldridge test and
with the probability value of 0.85, it revealed that that thee coefficients and the residual of the
model are correlated and thus, there is no presence of serial correlation problem in the model.
Due to the presence of heteroscedasticity and serial correlation problems in the model; Model
two was estimated using Prais-Winsten AR(1) regression iterated estimates .
Regression Equation Results
FPit = β0 + β1EIit + β2FATAit + β3FSTSit – β4FSit – β5BSit – β6FAit + εit..........................Equation 2
FPit = 19.84 + 0.03EIit + 0.02FATAit - 0.012FSTSit - 0.947FSit - 0.074BSit - 0.084FAit +
εit..........................Equation 2
The result of the FP regression analysis investigating the effect of internationalization
(percentage of foreign sales to total sales denoted by export intensity (EI), percentage of foreign
asset to total asset (FATA), and percentage of foreign shareholdings to Total Shareholdings
(FSTS)) on firm performance is presented in Table 4.5. The probability of t-test was used in
estimating the significance of the effect of each of the measures of internationalization on FP.
First, the EI probability of 0.323 being greater than 10% chosen significant level, evidenced that
export intensity has no significant effect on firm performance (FP) Similarly, the probability of
FATA of 0.208 showed that percentage of foreign asset to total asset (FATA) insignificantly
affects firm performance. The probability of percentage of foreign shareholdings to Total
Shareholdings (FSTS) of 0.534 implies that FP is insignificantly affected by FSTS at either 1%,
5% or 10%significance level. In addition, the study has proven that only firm age out of the
controlling variable was significant at p-value (0.040) less than 5% significance level while
others variables such as firm size and board size are insignificant at the probability value given
as (0.315) and (0.412) respectively.
Considering each of the proxies of internationalization estimated using the regression
coefficient value. The coefficient of EI of 0.03 means that a percentage increase in the foreign
sales to total sales would yield 0.03 percentage increase in FP. Likewise, the coefficient of FATA
of 0.02 implies that a percentage increase in the ratio of foreign asset to total, asset would result
to 0.02 percentage increase in FP. The coefficient of FSTS of -0.012 reflects that would decrease
by 0.012 percent as the percentage of foreign shareholdings to Total Shareholdings increases
by 1.2 percent. Similarly, the coefficient of firm size, board size, and firm age revealed of (-
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
0.947); (-0.074), and (-0.084) respectively, reflecting that firm size, board size, and firm age
would decrease firm performance as firm size increases by 9.47%; board size increases by
7.4%, and 8.4% increases. However, the coefficients and the probabilities of the t-test revealed
that none of the proxies of internationalization has a significant effect on FP with FATA, FSTS,
EI, FS, and BS showing both positive and negative contribution while FA shows a negative
contribution to FP. The study, however, indicates that FSTS, FS, FA and BS shows a negative
contribution to FP while EI and FATA show a positive contribution to FP.
The result of the F Statistic of 9.93 with degree of freedom of (6, 1153) representing six
independent variables in 160 firm-year observations and having a probability value of 0.00
implies that export intensity, percentage of foreign assets to total assets, percentage of foreign
shareholdings to Total Shareholdings, percentage of firm size, percentage of board size, and
percentage of firm age jointly have significant effect on FP. In addition, the value of the
coefficient of multiple determination of 0.252 means that the combined variations in EI, FATA,
FSTS, FS, BS, and FA resulted into 25.2% variation in FP while the remaining changes of 74.8%
resulted from other factors which are not within the coverage of the model. The result of the
adjusted r square is an indication that the independent variables (FSTS, FATA, EI, FS, BS, and
FA) contribute to the effect of FP with the percent value of 25.2%.
Decision: Considering the value of the Wald Stat of 18.30 with degree of freedom of (6, 1153)
representing six independent variables in 160 firm-year observations and having a probability
value of 0.00 being less than the 5% chosen significant level of the study, this study thus decide
that the null hypothesis for model two which states that “internationalization has no significant
effect on firm performance of listed multinational firms in Nigeria” is rejected. The study,
therefore, concluded that “internationalization significantly affect return on firm performance
listed multinational firms in Nigeria”
DISCUSSION OF FINDINGS
With or without the control variables, the result of the analysis has shown a significant positive
effect between internationalization and firm performance in conjunction with firm size, firm
age, and board size. The result is divided into two parts which include the analysis with control
variable and the analysis without control variable. The study has shown that
internationalization has a significant effect with firm performance as confirmed by Bingham et.
al., (2019) and some other researchers.
Barkema and Shvyrkov, (2017) asserted that internationalizing firms may have to hire new
management team members, redesign their products, and/or tailor their service to meet local
demand, established new distribution channels, and build new relationships with different
stakeholders. Sorensen & Stuart (2020) concluded that the younger a company is when it first
starts up, the less likely it is to succeed (i.e., the more likely to fail). Ural and Acaravci (2016)
examined the relationship between specific firm strategic factors e.g. age, size, capital intensity,
and labor intensity and financial performance of quoted Turkey’s manufacturing firms.
Vlachvier and Notta (2008) empirically examined firm growth, size, and age relationships in a
study aimed to confirm Gilbrat’s law of proportionate effect. Chun, Kim, Morck, and Yeung
(2008) discovered that as a company gets older, the likelihood of it sliding out of the top quartile
of the industry's sales distribution increases. Firm growth should slow with age since older
firms have passed the minimum efficient scale of production (Robson & Benneti, 2000).
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Barłożewski and Trąpczyński, (2021) assessed the performance effects of firm-specific
advantages, internationalization degree, and firm size revisited based on the resource-based
view. The study found that firm-specific area does not positively affect firm performance. The
result also found that a weak relationship occurs between firm performance and level of
internationalization. The result obtained for the moderating effect of the internationalization
degree indicated a weak relationship with the novice internationalizes. Baroewski and
Trpczyski (2021) conducted a similar study on internationalization motives and the
multinational-performance link using the case of Polish enterprises. Alabdullah, Ahmed, and
Yahya, (2018) found board size to be significant with CSR disclosure which confirmed this study
findings.
All the listed researchers were found to be in accordance with our findings because our study
found a significant relationship between internationalization, the controlling variable and the
firm performance. The variables used for the controlling variables include firm size, board size,
and firm age while that of internationalization include export intensity, foreign assets to total
assets, and Foreign shareholdings to Total Shareholdings.
CONCLUSION AND RECOMMENDATION
This study investigated the effect of internationalization on firm performance of listed
companies in Nigeria using both explanatory and control variable. The first model of the study
was without control variable while the second model was with control variables. The first
model of the article showed only FATA was significant at 10% while other variables such as EI
and FSTS were insignificant. The second model also shows that all the explanatory variables
and the control variables, expect firm age were insignificant at either 5% or 10% significance
level. Based on these, the two models indicated that the null hypothesis was rejected at p-value
< 0.05 (5% level of significance), thereby conclude that internationalization has a significant
effect on firm performance of listed companies in Nigeria. The study recommended that
managers should pay attention to sale from the foreign operations and review their credit sales
policies that may have influenced on foreign sales.
it is recommended that internationalized companies should take advantage of their strength,
weakness, opportunities, and threats and emerging opportunities to enhance the company’s
market shares. Management should put in place investment policies that will generate constant
dividend which will attract foreign investors to the company, thereby enhance operations and
performance.. it is also recommended that the managements and the investors should review
and re-engineer the dynamics of export to improve the performance of companies to efficiently
and effectively generate profits using its asset.
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Adeleke, S. A., Owolabi, S., & Akintoye, I. R. (2022). Internationalization Strategies and Performance of Multinational Companies in Nigeria. Archives
of Business Research, 10(7). 1-19.
URL: http://dx.doi.org/10.14738/abr.107.12509
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