The influence of ownership structure on internationalization

► We apply a principal agent approach to explain firms’ degree of internationalization (DOI). ► Owners’ preferred DOI depends on their ownership stake. ► Managers’ preferences are stable aiming at a high DOI. ► Owners’ and Managers’ power within the firm is related to ownership concentration. ► Firms’ DOI is a stretched u-shaped function of ownership concentration. Common reasons mentioned for a firm's internationalization are related to advantages for the firm. However, if firms are conceptualized as political coalitions, this view does not seem to be sufficient to explain why and to what extent firms internationalize. A principal-agent theoretical approach focusing the ownership-stake-related motivations and bargaining power of owners plus the range of actions managers can employ in different ownership situations offers an alternative explanation. We consequently studied the influences of ownership structure – defined as the concentration of ownership – on a firm's degree of internationalization and the main regions of international diversification. Overall, we conclude that the relationship is non-linear. To test our hypotheses, we utilize panel data for the 102 largest German manufacturing firms from 1990 to 2006. The analysis confirms our assumptions.