Should I stay or should I go? The influence of managerial self-interest on foreign exit decisions

Abstract

Based on the agency theory and the social exchange theory, this study investigates how foreign affiliate (FA) managers can utilise two mechanisms that the principal adopts to deal with the agency problem of influencing the foreign divestment/non-divestment decision of the headquarters (HQ). Specifically, we examine whether and under which conditions FA managers’ self-interest affects the decision of the HQ to divest a foreign market. Using secondary and primary data collected from multiple informants in Chinese firms engaged in outward foreign direct investment (OFDI), we find that although the FA managers’ self-interest has no direct impact on the HQ’s foreign divestment decision, the HQ is less likely to divest the foreign market when the FA manager holds a high level of trust in the HQ. Furthermore, when the FA is locally embedded in the foreign host market, the manager’s self-interest has the strongest negative impact on the HQ’s foreign divestment decision.