Abstract

International diversification is predominantly assumed to have a mixed (either positive or negative) linear relationship with environmental performance in multinational enterprises (MNEs). Departing from this assumption, we use firm-specific advantages (FSA) and institutional theory to hypothesise that international diversification, due to recombination barriers, has a curvilinear U-shaped relationship with MNEs’ environmental performance. Because of their key roles as boosters of country-specific advantages (CSA), we also examine whether home country competitiveness and environmental levels moderate the proposed curvilinear relationship. Results from panel data of 298 MNEs between 2006 and 2017 from 21 different countries in 11 sectors provide support for the main curvilinear relationship and the moderating influence of home country competitiveness. Our study contributes to the international business literature by casting doubt on the widely held assumption that international diversification always carries either positive or negative effects on environmental records.