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Abstract

We take an exploration-exploitation perspective on international diversification. Specifically, we suggest that, since changes in international diversification are typically related to exploration or exploitation-related motives (e.g., exploring new knowledge or exploiting existing knowledge) and since both motives show self-reinforcing effects, international diversification increasingly unbalances firms’ exploration-exploitation orientation. This is unfortunate given that a balance among the two is associated with superior performance and, as we argue, these performance effects are even stronger the higher the degree of international diversification. Put together, we introduce a novel paradox: While international diversification benefits from intermediate levels of exploration and exploitation, it increasingly unbalances firms’ orientation among the two. We find support for our arguments in a global sample of insurance firms over a period of nine years (1999-2007).

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