Divest or Keep a Foreign Subsidiary? The Roles of Learning from Performance Feedback

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This study extends performance feedback theory and examines multinational enterprises’ (MNE) decision-making regarding foreign divestments. Distinct from prior behavioral research, I examine the interaction between two causally related goals (parent profitability and sales goals). I challenge the applicability of the well-established sequential attention rule to such a goal relationship, and propose a new parallel, complementary-driven mechanism for how decision makers allocate their attention between goals. When decision makers perform a causal analysis during problemistic search resulting from poor performance in parent profitability, poor performance of a parent sales goal (a sub-goal of parent profitability) catches decision makers’ attention and is interpreted as a cause of poor parent profitability. Given that prior research suggests that solutions usually address the causes of problems, I argue that a parent sales goal is activated when the parent profitability goal is below the aspiration level in such a case, which is contrary to what the sequential- attention rule predicts. As foreign divestment may impede the MNE from achieving sales growth, the preference for foreign divestment as a solution to profitability problems may fall. In addition, I examine the interaction between learning from performance feedback and experiential learning from subsidiary operations.