MNE divestments of foreign affiliates: Does the strategic role of the affiliate have an impact?

Abstract

Divestments by multinational enterprises (MNEs) of their foreign affiliates are an increasingly important phenomenon in the contemporary global economy. We investigate what determines the likelihood that a foreign affiliate will be divested emphasising, in particular, the strategic roles played by the affiliates within their parent MNEs’ global value chains, and hence the degree of relatedness between the affiliate and the parent firm. We find that poor parent performance and poor affiliate performance are key determinants of affiliate divestment, but that the magnitude of these effects varies significantly depending upon whether the affiliates are in related or unrelated sectors, are horizontal or vertical affiliates, and are located upstream or downstream in the global value chain of their parent MNE.