How Do News Media Affect the Divestiture of Acquired Overseas Subunits

Abstract

The media research in strategic management has uniformly presumed how the news media portrayed firm actions and environments affect constituents’ perceptions of firms, given constituents’ sense-making rely on the media processed information. Going to a step further, our paper suggests that not only constituents but also firms use media reports for making sense of the environment that they are embedded in. On the basis, the news media affect strategic decisions by shaping firms' perception of the environment. To examine how the media affect corporate strategies, we specifically focus on the divestiture of acquired overseas subunits, a context where the media play an especially important role of information intermediary due to firms’ lack of information about host countries. We hypothesize that the negativity of news sentiments regarding a host-country’s environmental, social, and governance issues increase the divestiture hazard. Furthermore, we incorporate a moderator of subunit power exemplified as corporate entrepreneurship activities carried out by the subunit. We argue that stronger subunit power weakens the positive effects of media negativity. This study advances the understanding of media's impact on firms' strategic decisions and contributes to divestiture literature and corporate entrepreneurship literature.