In a more globalized world, especially because of liberalization of trade, business practices are experiencing international market expansion and diversification. However, when a company become more internationally diversified, the firm performance of the company also will be affected naturally. Therefore, a simple question arises: “Does greater internationalization lead to a better performance?”. This research is conducted to help in explaining the relationship between internationalization and current firm performance using residual income approach. Residual income is considered as an appropriate measure for strategic performance because it comprises the financial risk, measured by cost of capital, and company’s profitability. Moreover, in order to know the international diversification and long term firm performance relationship, this research uses Tobin’s Q as the representation of incorporating expectations measure. The model has been tested at the sample of Indonesian companies in manufacturing sector from 2011-2015. This research result indicated that the relationship between degree of internationalization and current firm performance follows a non-linear J-shape pattern, while the future performance, measured by Tobin’s Q follows a linear pattern with positive slope.

In a more globalized world, especially because of liberalization of trade, business practices are experiencing international market expansion and diversification. However, when a company become more internationally diversified, the firm performance of the company also will be affected naturally. Therefore, a simple question arises: “Does greater internationalization lead to a better performance?”. This research is conducted to help in explaining the relationship between internationalization and current firm performance using residual income approach. Residual income is considered as an appropriate measure for strategic performance because it comprises the financial risk, measured by cost of capital, and company’s profitability. Moreover, in order to know the international diversification and long term firm performance relationship, this research uses Tobin’s Q as the representation of incorporating expectations measure. The model has been tested at the sample of Indonesian companies in manufacturing sector from 2011-2015. This research result indicated that the relationship between degree of internationalization and current firm performance follows a non-linear J-shape pattern, while the future performance, measured by Tobin’s Q follows a linear pattern with positive slope.

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