A temporal variance decomposition of home country effects on firm performance

Abstract Research Summary Understanding the sources of firm performance is central to global strategy research, with home country differences traditionally viewed as critical. However, empirical evidence on home countries' evolving influence remains limited. Using variance decomposition techniques, we analyze 43,304 firms (589,149 observations) across 102 countries from 1993 to 2022. While home country effects remain significant, their importance has consistently decreased alongside rising firm effects. Supplemental analyses reveal variation in the magnitude and pace of change across contexts. Our findings nuance assumptions about stable home country‐level influences, demonstrating that country characteristics increasingly operate through firm‐specific channels rather than providing uniform advantages. This evidence suggests the need to reconceptualize how global strategy research theorizes country effects, moving beyond an emphasis on direct country‐level advantages toward understanding heterogeneous, firm‐mediated processes. Managerial Summary For decades, firms have relied on their home country's advantages to compete globally. Our analysis of over 43,000 firms across 102 countries from 1993 to 2022 explores this evolving reality. Home country advantages now explain less than half the performance variation they did 30 years ago, while individual firm‐specific resources and capabilities have become substantively more important. This shift accelerated following major global events. We suggest that firms can no longer count on inherited national advantages for success. Instead, they proactively develop firm‐specific advantages that transcend domestic constraints. While home country characteristics remain relevant, firms now bear a greater responsibility for crafting competitive positions that are independent of their national origins.