A Cross-classified Analysis of the International Diversification-performance Relationship

IB research explains the sources of variation in firm performance; including firm specific resources and environmental conditions evolving over time. Hence, factors at multiple levels and across time affect firm strategy and performance. IB research has yet to take full advantage of multilevel longitudinal theorizing and modeling. This article provides compelling evidence for the importance of correctly modeling complex nesting structures in strategy research. We demonstrate how scholars can use random coefficient modeling (RCM) to investigate the impact of covariates at multiple levels, while simultaneously accounting for the cross-nested nature that often characterize strategy phenomena. Our results show that neglecting to account for the complex nesting structure of the data may lead to biased estimates of variance components and standard errors, resulting in erroneous conclusions regarding key relationships. Our study has profound consequences for future IB research, highlighting the criticality of correctly modeling - both theoretically and empirically - the relevant contextual levels and nesting structures.