The Effect of International Diversification on Sustainable Development: The Mediating Role of Dynamic Capabilities

International diversification has become a crucial measure for firms to realize sustainable development. However, previous studies have drawn inconsistent conclusions on the sustainable performance impact of international expansion. This paper examines the relationships among international diversification, capabilities, and sustainable performance. We provide a theoretical perspective of dynamic capabilities to uncover the impact mechanism of international diversification on firms' economic and environmental performance. Based on data from Chinese listed manufacturing firms operating overseas, the findings show that international diversification is significant for firms' sustainable development, and its effect on economic performance and environmental performance is mediated by adaptive capability and innovation capability. The implications for theoretical development and operating practice are discussed.