The paper aims to identify the effects of internationalization on firms' financial performance. Numerous empirical investigations have attempted to study the relationship between internationalization and firm performance, producing both monotonic and curvilinear findings. The paper uses a sample of Polish businesses from the 2005-2006 period based on an annual league table of Poland's 500 largest companies ranked by 'Rzeczpospolita' daily newspaper. The dependent variable, firm performance, was measured using the return on assets. The key independent variable, the degree of internationalization, was measured by the ratio of foreign sales (exports) to total sales. The authors controlled for firm size, which was measured by the natural logarithm of total employment. The econometric analysis of a cross-sectional data set of multinational firms yielded results that point to a non-monotonic relationship between the degree of internationalization and firm performance. The study shows that there is a standard U-shaped curvilinear relationship between international diversification and firm performance. Polish firms initially suffer a decline in profits as they expand internationally, but over time, through gaining experience and through organizational learning, they begin to derive benefits from their international expansion and their performance improves.
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