International Journal of Emerging Markets

Internationalization and performance of Indian born globals: Moderating role of

presence of foreign equity
Manish B. Ganvir Neeraj Dwivedi
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Manish B. Ganvir Neeraj Dwivedi , (2017)," Internationalization and performance of Indian born
globals Moderating role of presence of foreign equity ", International Journal of Emerging Markets,
Vol. 12 Iss 1 pp. 108 - 124
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IJOEM
12,1
108
Received 14 December 2014
Revised 6 February 2016
Accepted 17 March 2016
Downloaded by University of Newcastle At 21:41 14 January 2017 (PT)
International Journal of Emerging
Markets
Vol. 12 No. 1, 2017
pp. 108-124
Emerald Publishing Limited
1746-8809
DOI 10.1108/IJoEM-12-2014-0207
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1746-8809.htm
Internationalization
and performance of
Indian born globals
Moderating role of presence of foreign equity
Manish B. Ganvir and Neeraj Dwivedi
Department of Strategic Management, Indian Institute of Management,
Lucknow, India
Abstract
Purpose The purpose of this paper is threefold: first, to study internationalization-performance
relationship of Indian born global (IBG) firms from multi-theoretical lens and establish the nature of this
relationship; second, to highlight the role of foreign equity in moderating this relationship; and third, to
establish the relevance of export intensity (EI) in determining these firms financial performance.
Design/methodology/approach In total, 411 IBG firms were identified based on born global (BG)
definition and post-entry internationalization age requirement of this study. A balanced panel comprising of
three years from 2010 to 2012 was analyzed using pooled panel and moderated multiple regression techniques.
Findings The authors empirically prove that though EI and financial performance are positively related at
overall level, this relationship is curvilinear in nature. In presence of foreign equity this positive curvilinear
relationship is moderated to inverted-U shape.
Research limitations/implications The data sample is restricted to 411 private limited IBGs between
the years 2009 and 2012. Implications of the findings are for policy makers and managers to sharpen their
strategic foresight for exporting firms in its post-entry period. Also, investors can take level of
internationalization into cognizance when investing in BG firms.
Practical implications The authors believe the results have practical implications for numerous parties,
such as shareholders, institutional investors, scholars, policymakers and managers. It emboldens modern day
managers to make further foray into internationalization due to its positive benefits on both productivity as
well as profitability. Also, firms that look for foreign equity participation have to balance their strategies for
greater scale and scope into international markets.
Originality/value This is the first study that brings out the vital relationship aspect of EI with financial
performance of IBG firms in their post-entry internationalization period, adding to international business
literature in area of BG firms in their post-entry internationalization period.
Keywords Emerging market multinationals, Multiple regression analysis, Business performance,
Born globals, Foreign equity, Post-entry internationalization
Paper type Research paper
Introduction
Internationalization as a subject has fascinated researchers over the years and still
continues to do so. Firms that internationalize early in their life-stage caught the attention of
researchers in the early 1990s. Various nomenclatures have been used by researchers to
differentiate such firms from the other gradual or slow internationalizing firms. Some of the
most common nomenclatures being international new ventures (Oviatt and McDougall,
1994); instant internationals (Preece et al., 1998); global start-ups (Oviatt and McDougall,
1994) and born globals (Gabrielsson et al., 2008; Yaprak and Karademir, 2010).
These fast internationalizing firms treat the world as their marketplace right from their
inception and see the domestic market only as support for their international business
(Andersson, 2011). Increasing prevalence of such firms and their important role in
An earlier version of this paper was accepted at 2014 Academy of International Business-SE
Conference in Miami, Florida, USA.
 international competition indicates a need for greater understanding of these firms Moderating
(Oviatt and McDougall, 1994). In line with contemporary literature on this topic, we refer to role of
early internationalizing firms as born global (BG) firms for this paper. presence of
Liberalization and reduced trade barriers have enabled firms to enter international
markets earlier in their life-stage (Khanna and Palepu, 2006). As a result, there is an foreign equity
increased influx of such firms especially from emerging economies, making it pertinent to
investigate the factors determining performance of such firms (Child and Rodrigues, 2005). 109
Literature on BG firms is still evolving, and has primarily remained focused on studying the
pre or initial entry stage of these firms. Gabrielsson et al. (2008) argue that even two decades
after the seminal work of Oviatt and McDougall (1994), we do not know enough about what
happens to BG firms after their initial entry phase (Zahra, 2005).

Research gap
This paper is in response to three key gaps identified in the current international business
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literature on focusing on BG firms.

The first research gap, which this study tries to bridge, is the lack of studies pertaining to a
crucial period in the life-stage of BG firms, which we call post-entry internationalization
stage. In this stage, the firms would have gained relevant international experience, which gets
incorporated into their knowledge banks, thus improving the quality of their future strategic
decisions. This provides us with a relatively fresh ground for testing the existing research
findings on the internationalization of BG firms, which has so far focused on the pre or initial
entry stage only. This paper intends to address this relevant gap and improve on existing
internationalization theories for post-entry internationalization dynamics of BG firms.
Second, India provides a unique context, characterized as having underdevelopment of both
hard and soft institutions. This context is similar to some other emerging and developing
economies, thus, providing a unique data set of firms from emerging economies exporting to
advanced countries (Ramamurti and Singh, 2009). Within the emerging and developing
economy firms, Indian born global (IBG) firms are uniquely characterized by the presence of
fewer language barriers with western business partners and customers, attributing to their
educational background which includes earlier exposure to English language (Zaheer et al.,
2009). Prior studies on export performance of Indian firms were inconclusive on the
relationship between foreign ownership and firms export performance (Srinivasan and Vani,
2011). We believe that the results of this study would be applicable for other similar emerging
economies as well and this empirical evidence would significantly reduce the literature gap on
understanding the behavior of IBG firms in their post-entry internationalization stage.
The third research gap, which this study tries to bridge, is the lack of conclusive studies on
the effect of presence of foreign equity (PFE) on the relationship between internationalization
and the performance of BG firms in their post-entry internationalization stage. Apart from
providing financial resources, foreign equity partners also bring benefits such as, access to new
technology, knowledge and human capital to the BG firms (Tambunan, 2005). Equity partition
in BG firms, however, increases in the post-entry internationalization stage, as the firms by
then have demonstrated performance track records. This stage, hence, is an important period
to explore the effect of PFE on the internationalization-performance relationship. We build our
argument based on prior studies indicating that foreign investor could provide local firms with
certain firm-specific advantages, resulting in superior performance (Dunning, 1993).
Drawing from the research gap identified above, in this paper we broadly try to find
answers to the following two key research questions:
RQ1. What is the nature of the relationship between internationalization and
performance for IBG firms in their post-entry internationalization stage?
RQ2. What role, if any, does the PFE play in this relationship?
 IJOEM Literature review and hypotheses development
12,1 Increasing prevalence and role of early internationalizing firms in international business arena
propelled the research effort on such firms during the previous two decades. However, the first
precise definition of BG firms, outlining their key characteristics, was provided by Chetty and
Campbell-Hunt (2004), while studying New Zealand firms. They defined BG firms as those firms
that internationalize so as to have a near simultaneous and thus rapid engagement with multiple
110 international markets, early in their life. Gabrielsson et al. (2008) further added that these are
firms, which seek rapid growth abroad, even before establishing sizable operation in their home
market. The time period of this rapid engagement in non-home countries is generally agreed as
one to three years from inception (Knight, 2000). A more fine-tuned definition was used by
Luostarinen and Gabrielsson (2004), who added extent of international expansion as a criterion
and included firms having a minimum of 25 percent of their sales from foreign markets.
Existing empirical studies on BG firms have confirmed that the ability to internationalize
early is a function of the internal unique assets of the firm (Knight and Cavusgil, 2004).
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Firm-level or internal factors have been found to have more explanatory power as
antecedents of financial performance as compared to external factors (Hawawini et al., 2003).
This has been further substantiated in more recent research linking firm-level factors and
firms resources in explaining internationalization and financial performance (Galbreath and
Galvin, 2008; Efrat and Shoham, 2012). This leads us to focus our attention on firm-specific
internal factors or antecedents in explaining the financial success or performance of BG
firms from developing economies.
The primary focus of most research on BG firms has been on pre-launch and entry stages
of their life. There is relatively very less attention on understanding the post-entry dynamics
of internationalization of such firms (Gabrielsson et al., 2008; Morgan-Thomas and Jones,
2009). Argument by Bruneel et al. (2010) further highlights the crucial linkage of experiential
learning, congenital knowledge and vicarious learning on the firms propensity to further
internationalization in its post-entry internationalization stage. However, there is
inconsistency in the literature as to what constitutes the post-entry internationalization
stage. For example, while Vivarelli and Audretsch (1998), in their study of Italian BG firms
considered a three-year period, Morgan-Thomas and Jones (2009) in their study of British
international new ventures (INVs) used a period of more than ten years. Further, in a study
of Malaysian firms by Chelliah et al. (2010), BG firms more than six years old were
considered to be in their post-entry internationalization stage.

Level of internationalization
The main purpose of BG firms is to garner sales from foreign markets, and thus level of
internationalization becomes a crucial factor in their performance and survival (Golovko
and Valentini, 2011). For the last three decades, international business literature has focused
on how internationalization-performance are related. However, there is no consensus on the
nature of this relationship. In past studies on BG firms, Export Intensity (EI), measured as
the ratio of foreign sales to total sales, is widely used as a measure of the level of
internationalization (Majocchi et al., 2005). However, as depicted in Table I, researchers have

Relationship Researchers

Positive linear Grant (1987), Grant et al. (1988), Tallman and Li (1996)
Table I. Negative linear Geringer et al. (2000), Denis et al. (2002)
Type of relationship U-shaped Lu and Beamish (2001), Ruigrok and Wagner (2003), Contractor et al. (2007)
between EI and Inverted U-shaped Geringer et al. (1989), Hitt et al. (1994), Hsu and Boggs (2003)
financial performance S-shaped Contractor et al. (2003), Lu and Beamish (2004), Johnson et al. (2009)
 found five types of relationships between level of internationalization and financial Moderating
performance depending on the country and level of internationalization of the firms studied. role of
This highlights the complexity and context dependency of this relationship. presence of
The resource-based view (RBV) of the firm (Wernerfelt, 1984; Barney, 1991), which
postulates that a firm is able to gain competitive advantage in the marketplace through foreign equity
possession of certain competitively valuable resource and capabilities, has often been used
to explain the relationship between the level of internationalization and performance of 111
firms (Dhanaraj and Beamish, 2003; Peppard and Rylander, 2001).
For BG firms, exports are essential for survival and growth (Golovko and Valentini, 2011).
Exporting is known to develop a firms competitive advantage (Anderson and Gatignon, 1986)
and managerial skills (Kafouros et al., 2008). According to RBV, with increase in the scope of
exports, firms should be able to garner more resources and capabilities. Further, in the post-
entry internationalization stage, which is the focus of this paper, IBG firms are unlikely to face
major costs due to liability of newness and liability of foreignness (Zaheer et al., 2009).
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At this stage firms are also likely to benefit from knowledge acquired abroad (Contractor,
2007) and improved economy of scale (Lu and Beamish, 2001). More specifically IBG firms are
likely to face low language barrier while operating in export markets.
While there are benefits as described above, exporting also includes additional costs,
risks, uncertainties and higher costs of coordination and monitoring, especially in markets
separated by large distances coupled with the diversity (Hitt et al., 1994). We argue that
while every incremental international operation or market, would incur learning,
coordination, local adaptation and legitimacy acquisition costs, the benefits begin to
outweigh these incremental costs in post-entry internationalization stage. Hence we
postulate that IBG firms would depict a positive curvilinear relationship between level of
internationalization and performance at this stage. Using the three key measures of financial
performance used in the literature on BG firms, that is, profitability, productivity and
investor returns (Contractor, 2007; Tan and Mahoney, 2007; Lu and Beamish, 2006), we
postulate our hypotheses as follows:
H1. Level of internationalization will have a positive curvilinear relationship with the
profitability of IBG firms.
H2. Level of internationalization will have a positive curvilinear relationship with the
productivity of IBG firms.
H3. Level of internationalization will have a positive curvilinear relationship with
investor returns of IBG firms.
PFE
Literature suggests that foreign-owned firms from developing economies can bring-in firm-
specific advantages and can result in a superior firm performance (Dunning, 1993).
Developing economies such as India are preferred investment destinations for international
firms because of the advantages they offer such as access to potential markets, low cost
abundant supply of human capital and natural resources (Davis and Meyer, 2004; Frost,
2001). Based on network theory, it has been argued that foreign equity partner and BG firms
would exhibit much stronger network ties (Coviello and Munro, 1995). A foreign equity
partner can help the local BG firm to build new relationships and trust in foreign equity
partners network. This in turn allows the firm to have access to new skills and gain
credibility (Osarenkhoe, 2009). Zahra et al. (2000) argue that foreign equity partner provides
vital information and hands-on experience to top management team of BG firms, which can
have an impact on expansion and performance.
Foreign partners provide much needed networks (strengthening ties) with foreign
markets, which can be tapped by BG firms to coordinate networks of culturally
 IJOEM and institutionally diverse foreign markets effectively, thereby increasing their
12,1 presence in those countries (Bartlett and Ghoshal, 1989; Tan and Mahoney, 2007).
This allows BG firms to improve on their level of internationalization and in turn
financial performance.
From the RBV of the firm described above, it also flows that the level of
internationalization influences firm profitability. According to Grant (1991), availability of
resource and capabilities is a key factor for the generation of competitive advantage of the
112 firms. Among resources, intangibles are the most sought after resources as they are difficult
to imitate and hence lead to sustained capabilities.
The presence of a foreign equity partner is also found to have reduced the perceived risks
faced by BG firms (McDougall et al., 1994). Local firms can gain access to intangible
resources such as foreign market knowledge, better access to foreign markets, advanced
technology inputs to develop creative products and in turn improve their market
performance (Wind and Mahajan, 1997). The above theory and supported literature
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suggests that there is possibility of a positive impact of foreign equity partner on

internationalization as well as resulting financial performance.
While the role of a foreign equity partner for BG firm has been described, it is also
important to understand the motivation behind the foreign equity partners decision to
invest in BG firms of developing economies. According to institutional theory, institutional
voids exist in emerging markets due to imperfect markets (Scott, 2004) and these could have
adverse effects on business performance and efficiencies (Khanna and Rivkin, 2001).
This results in higher transaction costs. For example, weakly defined property rights might
prevent intangible resource flow into developing economy BG firms from a developed
economy foreign partner. One can argue that as level of internationalization increases, there
is higher need for intangible resources for BG firms, which are accompanied with increased
transaction costs, hence in the case of foreign equity there is likelihood of a negative
moderation effect visible as level of internationalization increases. Developing economies
such as India are preferred investment destinations for international firms as they
stand to gain access to various local advantages such as growing potential markets,
low cost abundant supply of human capital and natural resources (Davis and Meyer, 2004;
Frost, 2001). Foreign firms investing in developing markets also look at these
developing economies as potential markets. This gives rise to a potential conflict of
interest, since BG firms would have an incentive to increase exports whereas, foreign firms
are looking at expanding the local markets. Figure 1 depicts the complete theoretical
framework developed.
Based on RBV, network theory and institutional theory and the positive and
negative effects discussed, we argue that the PFE will have a positive moderating
impact on the relationship between internationalization and financial performance.
At low as well as at high levels of EI, there is a possibility of stagnation or
negative relation for the foreign partner investing in IBG firms. Based on this,
we postulate that the PFE will have an inverted U-shaped moderation effect on the
relationship between the level of internationalization and financial performance. Using the

Level of H1, H2, H3

Financial Performance
Internationalization
Figure 1.
Theoretical framework RBV Perspective
H4, H5, H6
for developing
research hypothesis of RBV, Institutional Theory
this study Foreign Equity
and Network Theory
 same three measures of financial performance as used earlier, we present the following Moderating
three hypotheses: role of
H4. PFE will have an inverted U-shaped moderating effect on the relationship between presence of
level of internationalization and profitability of IBG firms. foreign equity
H5. PFE will have an inverted U-shaped moderating effect on the relationship between
level of internationalization and productivity of IBG firms.
113
H6. PFE will have an inverted U-shaped moderating effect on the relationship between
level of internationalization and investor returns of IBG firms.

Methodology
Data
Data for this paper were taken from Prowess database. This database covers a majority of
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public Indian companies and compiles financial data using audited annual reports provided
by the companies. This database is extensively used in large number of studies primarily
due to its relatively good quality and accuracy (e.g. Khanna and Rivkin, 2001).
Firms across the globe faced recessionary pressures in 2007-2009 due to a major
economic downturn affecting economies around the world. The effects of this recession were
visible in production, employment, real income and other indicators (Iqbal and Vitner, 2011).
We selected data for this study for the period 2010-2012 as we wanted to study firms that
have survived and recovered from this period.
As this study is focused on studying IBG firms who were into their post-entry
internationalization stage, we considered firms that had been in the market for at least six
years. Firms were classified as BG, when they made their first sales in foreign markets
within three years of their inception and derived at least 25 percent of their turnover outside
their home market within that period. Using the above detailed criterion, we identified 790
Indian firms satisfying the definition. This set was further refined by removing firms with
incomplete data. This finally gave us 411 firms with balanced data for 2010-2012.

Variables
Independent variable. Drawing on earlier research (Bijmolt and Zwart, 1994), we used EI as a
proxy for the level of internationalization. It is defined as the percentage of the firms sales
resulting from exports. We also use squared, cubic and prior years term of EI as
independent variables to explore the nature of the relationship.
Dependent variables. Three variables were used to measure financial performance.
Productivity was measured as return on assets (ROA). It gives insight into how efficiently the
business is employing the resources invested in fixed assets and working capital (Gomes and
Ramaswamy, 1999). Profitability was measured using return on capital employed (ROCE). It is a
valuable financial ratio for evaluating a companys efficiency and the quality of its management
(Andras and Srinivasan, 2003). Investor returns was measured as earnings per share (EPS),
generally considered to be one of the most important variable from the investors point of view:
ROA Profits after taxes interest=Total assets (1)
ROCE Operating profit=Capital employed (2)
where, Capital employed Net worth + Debt.

EPS Profits after taxes  Preferred stock dividends=

Number of shares of common stock outstanding (3)
 IJOEM Control variables. To control for variation in firm performance attributed to variables other
12,1 than EI, we included the following variables as control variables:
(1) firm size (size): natural log of sales as proxy for firm size;
(2) debt to equity ratio (DER): a measure of how much the firm relies on debt to finance
its undertakings;
114 (3) firm age (age): firm age was controlled, as per prior studies in this field (Chandler
and Hanks, 1998); and
(4) industry type: nine industry dummies were used to control for industry effects,
based on second level SIC industry classification, as per prior studies (e.g. Kotabe
and Swan, 1995).
Moderating variable. PFE: This variable was coded as a categorical variable indicating
presence or absence of foreign equity (Hoskisson et al., 2004).
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Regression models
The regression equations presented below are based on the six hypotheses stated earlier.
The control regression equation is on similar lines but not stated here:
ROCEit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit

b5 AGEit b6 SIZEit b715 Industry Dummiesit e (4)

ROAit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit

b5 AGEit b6 SIZEit b715 Industry Dummiesit e (5)

EPSit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit

b5 AGEit b6 SIZEit b715 Industry Dummiesit e (6)

ROCEit  PFEit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit b5 AGEit

b6 SIZEit b7 PFEit b8 EIit  PFEit b9 EIit  EIit  PFEit

b10 EIit  EIit  EIit  PFEit b1119 Industry Dummiesit e (7)

ROAit  PFEit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit b5 AGEit

b6 SIZEit b7 PFEit b8 EIit  PFEit b9 EIit  EIit  PFEit

b10 EIit  EIit  EIit  PFEit b1119 Industry Dummiesit e (8)

EPSit  PFEit C b1 EIit b2 EIit  EIit b3 EIit  EIit  EIit b4 DERit b5 AGEit

b6 SIZEit b7 PFEit b8 EIit  PFEit b9 EIit  EIit  PFEit

b10 EIit  EIit  EIit  PFEit b1119 Industry Dummiesit e (9)
where i firm (1-411); t time (1-3 years); EI, export intensity; ROCE, ROA and EPS are
financial performance indicators, AGE is in years, SIZE is log of sales and nine Industry
Dummies.
 Data analysis Moderating
A stepwise approach was used to identify the most optimal model suitable for answering the role of
research questions posed in this study. Pooled ordinary least square methodology was presence of
selected after testing for stationarity of the panel data as outlined by Baltagi (2008). Fixed
effect model was found to be the correct estimation procedure, after ruling out the random foreign equity
effects using Hausman (1978) Specification test in STATA.
Also, a moderated multiple regression (MMR) model was used for evaluating the moderation 115
impact (Tables III-V). This approach enabled integration of cross-sectional time series data with
multiple dependent variables. The following steps were adopted to arrive at the optimal model:
(1) Test of normality: dependent variables were tested for normality using the
Kolmogorov-Smirnov and Shapiro-Wilk tests (Green and Salkind, 2003). As the
statistics in KS test results was greater than 0.05, it supported the assumption that
the dependent variables were normally distributed.
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(2) Multicollinarity: mean centering of EI was done as per Aiken and West (1991) to rule
out the multi-collinearity issue in the data set.
(3) Tests for heteroskedasticity: the Breusch-Pagan/Cook-Weisberg tests were used to
find presence of heteroskedasticity. The test results ruled out the presence of
heteroskedasticity.

Results
Descriptive statistic and correlation analysis
A total of 411 IBG firms were selected and a total of 1,233 data points were analyzed.
Foreign equity was present in 72 percent of the firms in the data set. Pearsons correlation
matrix (Table II) shows significant correlations between ROCE and EI as well as EI3.
Whereas, ROA shows significant correlation with only EI3. There is no significant
correlation terms for EI2 for any of the financial measures studied. Industry dummies were
used for analysis, but are omitted from the tables.

Empirical results
Regression analysis for profitability (ROCE) is shown in Table III, productivity (ROA) in
Table IV and investor returns (EPS) in Table V.
Model 1 in Table III, shows the model with control variables (Size, Age, DER and
industry), this control model only explains approximately 6 percent variance (adjusted R2) of
the dependent variable profitability. Compared with Model 2 (regression Equation 4) we see
EI terms explaining a good 18 percent of variance in ROCE. value of EI3 ( 0.35,

Mean SD ROCE ROA EPS SIZE AGE DER EI EI  EI EI  EI  EI PFE

ROCE 3.41 20.6 1.000

ROA 2.35 15.3 0.669** 1.000
EPS 10.63 73.9 0.275** 0.220** 1.000
SIZE 2.97 1.1 0.218** 0.185** 0.141** 1.000
AGE 17.24 8.0 0.014 0.018 0.002 0.094** 1.000
DER 1.37 6.2 0.068* 0.042 0.011 0.052 0.009 1.000
EI 0.00 32.2 0.073* 0.018 0.019 0.078** 0.003 0.009 1.000
EIEI 1,036.33 1,131.5 0.007 0.042 0.001 0.103** 0.048 0.060* 0.719** 1.000
EIEIEI 1,712.87 3,4981.9 0.379** 0.716** 0.102** 0.108** 0.011 0.020 0.025 0.009 1.000
PFE 0.72 0.4 0.034 0.007 0.095** 0.187** 0.252** 0.015 0.156** 0.036 0.054 1.000
Table II.
Notes: n 1,233, Industry Dummies are not shown in correlation matrix. *,**Correlation is significant at the 0.05 and 0.01 levels Pearsons correlation
(two-tailed), respectively matrix
 IJOEM Model 4 Full EI
12,1 Model 1 Control Model 2 EI Model 3 EI+PFE moderated
Performance Ratio (ROCE) t-value t-value t-value t-value

(Constant) 2.17 1.00 0.63 0.60

SIZE 0.23*** 8.11 0.18*** 6.49 0.19*** 6.70 0.16*** 5.92
AGE 0.03 1.14 0.04 1.39 0.02 0.91 0.02 0.91
116 DER 0.07*** 2.66 0.07*** 2.54 0.07*** 2.55 0.05** 2.14
Export intensity 0.04 0.54 0.05 0.69 0.17 1.62
Export intensity2
0.03 0.66 0.03 0.77 0.38*** 4.81
Export intensity3 0.35*** 13.53 0.35*** 13.34 1.54*** 16.02
PFE 0.05** 1.92 0.08* 1.82
PFE Export intensity 0.31*** 2.78
PFE Export intensity2 0.30*** 3.53
PFE Export intensity3 1.20*** 12.81
F-value 7.40*** 19.75*** 18.12*** 25.10***
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Table III.
Export intensity R2 0.062 0.190 0.192 0.293
2
relationship with Adj R 0.062 0.180 0.182 0.281
profitability and Durbin-Watson 1.92 1.92 1.94 1.94
PFE moderating R2 0.128 0.130 0.230
impact (MMR) Notes: Significant at ***p < 0.01, **p < 0.05, *p < 0.10 levels (2 tailed), respectively

Model 8 Full EI
Model 5 Control Model 6 EI Model 7 EI + PFE Moderated
Efficiency ratio (ROA) t-value t-value t-value t-value

(Constant) 1.83 0.15 0.02 1.64

SIZE 0.19*** 6.69 0.10*** 4.61 0.10*** 4.46 0.08*** 3.72
AGE 0.00 0.12 0.00 0.19 0.01 0.35 0.01 0.39
DER 0.05* 1.75 0.03* 1.67 0.03* 1.67 0.02 1.17
Export intensity 0.07 1.35 0.07 1.29 0.10 1.20
Export intensity2
0.03 1.02 0.03 0.98 0.33*** 5.41
Export intensity3 0.71*** 35.50 0.71*** 35.44 1.47*** 19.82
PFE 0.01 0.68 0.04 1.29
PFE Export intensity 0.24*** 2.79
PFE Export intensity2 0.29*** 4.41
PFE Export intensity3 0.77*** 10.56
F-value 5.27*** 92.45*** 86.96*** 82.41***
Table IV.
R2 0.045 0.533 0.533 0.576
Export intensity 2
relationship with Adj R 0.037 0.527 0.527 0.569
productivity and Durbin-Watson 1.99 2.01 1.99 1.99
PFE moderating R2 0.487 0.487 0.531
impact (MMR) Notes: Significant at ***p < 0.01, **p < 0.05, *p < 0.10 levels (2 tailed), respectively

p o0.01) is significant. This shows a clear curvilinear (only cubic term) relationship of EI
with profitability (ROCE), supporting H1.
In Table IV, we study Model 5 (control model) for productivity (ROA). This control model
explains 3.7 percent of variance in ROA. Compared with Model 6 (regression Equation 5) we
see EI terms explaining 52.7 percent variance in ROA. value of EI3 ( 0.71, p o0.01) is
significant. This shows a clear curvilinear (only cubic term) relationship of EI with ROA,
thus supporting our H2.
In Table V, we look at Model 9, which is a control model for productivity (ROA). This
control model explains less 2.2 percent of variance in EPS. Compared with Model 10
(regression Equation 6) we see EI terms explaining 2.6 percent variance in ROA. value of
 Model 12 Full EI
Moderating
Model 9 Control Model 10 EI Model 11 EI+PFE Moderated role of
Investor ratio (EPS) t-value t-value t-value t-value presence of
(Constant) 2.10 1.92 1.08 0.44 foreign equity
SIZE 0.15*** 5.11 0.14*** 4.70 0.16*** 5.33 0.14*** 4.42
AGE 0.00 0.08 0.00 0.10 0.03 0.91 0.03 1.03
DER 0.02 0.54 0.01 0.49 0.01 0.50 0.00 0.17 117
Export intensity 0.06 0.79 0.03 0.43 0.05 0.39
Export intensity2
0.01 0.15 0.00 0.11 0.30*** 3.38
Export intensity3 0.08*** 2.79 0.07*** 2.45 0.90*** 8.33
PFE 0.13*** 4.40 0.19*** 3.79
PFE Export intensity 0.04 0.31
PFE Export intensity2 0.28*** 2.92
PFE Export intensity3 0.84*** 7.99
F-value 3.51*** 3.18*** 4.23*** 6.89***
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Table V.
R2 0.031 0.038 0.053 0.102
2 Export intensity
Adj R 0.022 0.026 0.040 0.087 relationship with
Durbin-Watson 2.01 2.03 2.03 2.03 investors returns and
R2 0.007 0.022 0.071 PFE moderating
Notes: Significant at ***p < 0.01, **p < 0.05, *p < 0.10 levels (2 tailed), respectively impact (MMR)

EI3 ( 0.08, p o0.01) is significant. This shows a curvilinear (only cubic term) relationship
of EI with productivity (ROA), though the explanatory power does not improve
significantly. Hence H3 is partially supported.

Moderating effect of PFE

To explore the nature of relative significance of PFE in the relationship between EI and
financial performance, we used the MMR method to estimate the moderating effect of a
categorical variable on the relationship between continuous predictors and a continuous
criterion. This is a widely used technique (Bobko and Russell, 1994; Mason and Perreault,
1991, Lengler et al., 2013).

Profitability (ROCE)
Starting with the relationship of EI on ROCE moderated by PFE, we start with Model 3 in
Table III, when we introduce the term PFE into the regression Equation 4, there is no change
in R2 value also the coefficient of PFE term is non-significant. We can conclude that the
PFE term on its own does not have any direct impact on explaining variance in ROCE.
Regression results for Equation 7 are depicted in Model 4. There is a significant
improvement in explanatory power of the model (adjusted R2 from 0.18 to 0.281). Model 4,
also shows that all three linear, squared and cubic terms of EI are significant. The sign for
EI is positive ( 0.31, p o0.01), EI2 is also positive ( 0.30, p o0.01), whereas the EI3 is
negative ( 1.20, p o0.01). This shows a clear non-linear (inverted U-shaped)
moderating effect of PFE on relationship of EI with profitability (ROCE), thus supporting
H4. Figure 2 depicts both the relationships, curvilinear type of EI with profitability and
non-linear (inverted U-shaped) with moderation by foreign equity.

Productivity (ROA)
For the relationship of EI on ROA moderated by PFE, we start with Model 7 in Table IV,
when we introduce the term PFE into the regression Equation 5, there is no change in R2
value and the coefficient of PFE term is not significant. So there is no direct relationship of
PFE with ROA.
 IJOEM Regression results of Equation 8 are depicted in Model 8. There is a significant
12,1 improvement in the explanatory power of the model (adjusted R2 from 0.527 to 0.569).
Model 8, also shows that all three terms, linear, squared and cubic term of EI are
significant. With EI having positive sign ( 0.24, p o 0.01), the sign for EI2 is positive
( 0.29, p o 0.01), whereas the EI3 is negative ( 0.77, p o 0.01). This shows a clear
inverted U (+ve linear, +ve squared and ve cubic term) moderating effect of PFE on
118 relationship of EI with productivity (ROA). Hence H5 is supported. Figure 3 depicts both
the relationships, curvilinear type of EI with financial performance and non-linear
(inverted U-shaped) with moderation by foreign equity.

Investor returns (EPS)

For the relationship of EI on EPS moderated by PFE, we start with Model 11 in Table V,
when we introduce the term PFE into the regression Equation 6, there is significant change
in R2 value (adjusted R2 from 0.026 to 0.04) and the coefficient of PFE term is significant
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with a negative sign ( 0.13, p o0.01). So there is some evidence of direct relationship of
PFE with EPS.
Regression results for Equation 9 are depicted in Model 12. There is a significant
improvement in explanatory power of the model (adjusted R2 from 2.6 to 8.7 percent).
In Model 12, also show that two terms, squared and cubic term of EI are significant. With
EI2 is positive ( 0.28, p o0.01), whereas the EI3 is negative ( 0.84, p o0.01).
This shows a clear negative curvilinear (+ve squared and ve cubic term) moderating effect
of PFE on relationship of EI with investor returns (EPS). Hence H6 is not supported.
However, for EPS we find empirical evidence of a negative curvilinear relationship. Figure 4
depicts this relationship.
In sum, the moderation effect of foreign equity (PFE) is an inverted U-shaped impact on
the relationship of EI on financial performance measures (productivity and profitability) and
a negative curvilinear relationship for investor returns.

Profitability vs Internationalization

ROCE = 0.35EI3
ROCE

Exports Intensity

Figure 2. ROCEPFE = 0.31EIPFE + 0.30EIPFE2 1.20EIPFE3

Profitability vs
internationalization

Productivity vs Internationalization
ROA = 0.71EI3
ROA

Exports Intensity
Figure 3.
Productivity vs
internationalization ROAPFE = 0.24EIPFE + 0.29EIPFE20.77EIPFE3
 Conclusions Moderating
This study makes three major contributions. First, we argue that firms level of role of
internationalization (measured as EI) has as a positive relationship with their financial presence of
performance. This relationship is curvilinear in nature. Second, by integrating network theory,
RBV and institutional theory, this study enhances our understanding of the moderating foreign equity
impact of foreign equity on the relationship of level of internationalization and performance,
especially for developing economy BG firms. And third, we expand our understanding 119
of an under researched phenomenon, namely, the effect of firms internationalization on
financial performance outcomes in the post-entry internationalization stage of BG firms from
emerging economies.
Our findings support our argument of the relationship of EI with financial performance.
EI explained 18.0 percent variance in ROCE; 52.7 percent variance is ROA and 2.6 percent in
EPS. All these relationships are positive and curvilinear in nature. Our findings confirm that
EI has a strong effect on both firm profitability and productivity, and also has a positive,
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albeit marginal, impact on EPS. Based on the empirical results it is argued that the more
exports oriented the firm is, the greater its profitability and productivity. The empirical
evidence of type of relationship tries to resolve the ambiguity surrounding the nature of
relationship that level of internationalization (EI) exhibits with financial performance.
Earlier study of Lu and Beamish (2006), found a negative impact of EI on firm
performance for of Japanese firms, however our study shows that IBG firms have a positive
curvilinear relationship. This difference is possible due to the fact that IBG firms are small
to medium size (median size is less than 1 billion INR) and have a greater scale of growth
(Park and Jang, 2010) and higher scope of internationalization.
Further, we empirically prove the positive moderating impact of PFE on the relationship
that EI has with productivity, profitability and investor returns. PFE moderates the
relationship of productivity and profitability with EI, from a positive curvilinear to an
inverted U-shaped one. Moreover, for investor returns, the relationship with EI is made more
negative in PFE among IBG firms.
We believe our results have far reaching implications for research especially for BG firms
from developing economies, those that face a peculiar criteria of exporting from large
domestic market and attract high amount of foreign investments. This paper attempts to
provide empirical evidence to fill three gaps in international business literature on BG firms.
Though results of PFE impact were not in line with prior researches, it throws additional
light on the importance of increasing our understanding of INV theory and institutional
theory for emerging market BG firms. Our findings also add new dimensions to existing
international business theory, by improving our understanding about the post-entry
internationalization stage of BG from emerging markets.
We believe our results have practical implications for numerous parties, such as
shareholders, institutional investors, scholars, policymakers and managers. It emboldens

Investors Returns vs
Internationalization

EPS = 0.07EI3
EPS

EPSPFE = 0.28EIPFE20.84EIPFE 3
Figure 4.
Investors returns vs
Exports Intensity
internationalization
 IJOEM modern day managers to make further foray into internationalization due to its positive
12,1 benefits on both productivity as well as profitability. Investors and other stakeholders can
take level of internationalization as well as PFE into cognizance while making investment
decisions regarding BG firms. Also, firms that look for foreign equity participation have to
balance their strategies for greater scale and scope into international markets.

120 Limitations and scope for future research

We feel that our study opens up new windows of opportunity for further research among
emerging economies BG firms. However, one major limitation for this study, as in all
secondary data-based studies is the limitation of available data. Future studies can conduct
primary research with focus on softer issues that add explanatory power to the reasons for
an inverted U-shaped relationship that we empirically noticed for moderation impact of
foreign equity.
Second, we have designed the study to consider firm-specific (internal) variables, future
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research can include external environmental variables to add more insights and enrich
international business literature. Our study analyzes IBG firms, a larger study can
incorporate all internationalizing firms (including slow internationalizing firms) as well, to
get an overview of the relationship between level of internationalization and performance
for exporting firms.

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About the authors

Manish B. Ganvir is currently a Doctoral Student at the Indian Institute of Management (IIM) Lucknow
in the Strategic Management area. He has 13 years experience in areas of new product development,
new product launching, strategic branding, brand positioning, marketing, and consumer insights
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in pharma (OTC), media (print) and food (flavors) industry. His current areas of interest are
internationalization, intellectual capital, born globals, and entrepreneurship. Manish B. Ganvir is the
corresponding author and can be contacted at: fpm10008@iiml.ac.in
Neeraj Dwivedi is a Faculty at the Indian Institute of Management (IIM) Lucknow in the Strategic
Management area. He is a Fellow of the Indian Institute of Management Lucknow and Master in
Engineering from the Indian Institute of Technology Kharagpur. Apart from having about 14 years
of experience in management research and teaching, he has also spent about seven years in the
corporate sector, mainly in the food processing industry, in various capacities. His current areas of
interest are M&A, international business and corporate governance.

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