DIVESTMENT AND RE-INVESTMENT CHOICES IN FOREIGN MARKETS. A COMPARISON BETWEEN FAMILY AND NON-FAMILY MULTINATIONAL ENTERPRISES

Abstract

Internationalization of an MNE often involves succession of entries, divestments and re-investments in the host country. However, the extant literature rarely analyses these sequential processes. By relying on a broad agency model, we argue that these processes are shaped by MNEs’ organizational learning, which in turn depends on their internal headquarters-subsidiary configuration. Specifically, we compare investment-divestment-reinvestment sequences undertaken by family MNEs vs. non-family MNEs. Due to specific agency problems affecting their internal configuration, and to lower levels of self-interest and bounded rationality in overseas subsidiaries, family MNEs incur lower agency costs than non-family MNEs in running businesses abroad, and present a learning model that allows them to more effectively memorize and value past events experienced at the subsidiary level. As a result, while family MNEs and non-family MNEs do not differ in their propensity to divest foreign subsidiaries, after divestment occurs, the former will be more incline to re-invest in the same host country, and the likelihood increases with the depth of their local presence there. Our empirical analyses, conducted on a large sample of foreign investment-divestment-reinvestment initiatives by Italian companies, in the period 2000-2015, support our hypotheses, thus advancing our knowledge on a topic underexplored so far.