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Despite being a pivotal topic over the past 50 years, the benefits and costs of internationalization are not well understood. A substantial body of research in international business, strategy, and general management is devoted to understanding firm internationalization and its connection to a firm’s financial performance; however, results are inconclusive.

This thesis explores firm performance in relation to internationalization processes and, consequently, a firm’s degree of multinationality. The aim is to critically assess the extant literature, evaluate prevailing underlying assumptions, and investigate the causal direction between the two key concepts: firm performance and multinationality. A sequential, multiphase research approach divides the research process into three consecutive phases – exploratory, confirmatory, and explicatory – allowing for a combination of methods, including a systematic literature review, fixed effects logistic regression on 13 years of unbalanced panel data, curvilinear OLS regression on panel data, and content analysis of pilot case studies. Together, this provides a holistic response to the research question: What role does firm performance play in relation to multinationality?

Findings reveal a paradigmatic bias in previous research, where authors propagate the ubiquitous causal assumption that multinationality affects firm performance. Instead, this thesis finds solid statistical support for a reversed causal relationship – firm performance drives multinationality. The theoretical arguments are derived from behavioral theories, including the resource-based view, the internationalization process model, and prospect theory. This thesis bridges organizational-level with individual-level theories, contributing to the discussion on managerial decision-making in the internationalization process.