Factors Affecting Foreign Direct Divestment by MNEs: An Empirical Analysis of Korean Subsidiaries in Poland

Abstract

Purpose – Foreign direct investment (FDI) by multinational enterprises (MNEs) has increased in recent years, and simultaneous foreign direct divestment (FDD) by subsidiaries is also very common. FDD can have a significant effect both on the performance of the MNE and the host economy. This study attempts to theoretically and empirically investigate factors affecting the divestment of Korean MNEs, focusing on subsidiaries in Poland. Design/Methodology/Approach – The study identifies six factors, such as entry mode, experiential local knowledge, business group affiliation, EU-Korea Free Trade Area (FTA), and the type of industry and product through a literature review, and establishes hypotheses regarding the effect of these variables on the subsidiary divestment tendency. The study statistically tested these hypotheses using a Cox proportional-hazards model with secondary data on Korean subsidiaries operating in Poland between 2009 and 2016. Findings – Test results show that Korean MNE subsidiaries in Poland characterized by an entry mode of sole investment, richer experiential local knowledge, affiliation with a business group in Korea, and entry after the EU-Korea FTA were less likely to divest from the Polish market. Research Implications – Although the issue of FDD has become significant from the perspective of both the MNE and local governments, there has not been active academic research. This study is one of the first empirical studies on the divestment of Korean MNE subsidiaries in the European market, and can contribute to academic literature and governmental policymaking.