"Performance Feedback, Vertical and Horizontal Pay Dispersions, and International Diversification"

Various theoretical perspectives have been evoked to explain why firms engage in international diversification. However, these theories have been criticized for implicitly assuming that firms internationalize for similar reasons and that contexts do not matter. To remedy this theoretical limitation, we build a conceptual framework premised on the behavioral theory of the firm, tournament theory, and social comparison theory. We investigate how international diversification responds to performance relative to the aspiration level while also establishing boundary conditions for the predicted main effects by examining the moderating influences of vertical pay disparity and horizontal pay dispersion. Empirical results based on a panel dataset of 1,365 firm-year observations from Standard and Poor’s 500 firms for the period from 1996 to 2006 strongly support our hypotheses.