Research has shown that, as international diversification increases, firms' returns decrease initially but then increase quickly as firms learn to manage international expansion.

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This is a widely accepted finding in international finance research, known as "the U-curve hypothesis." It suggests that firms face greater risks and challenges when expanding internationally, requiring them to invest in learning how to navigate foreign markets. Consequently, initial returns are lower, but as firms accumulate experience and knowledge, they are better equipped to exploit global opportunities and generate higher returns.

Research Has Shown That, as International Diversification Increases, Firms' Returns