Divestment Decisions Research Articles

Time to say goodbye? The impact of environmental regulation on foreign divestment

Time to say goodbye? The impact of environmental regulation on foreign divestment

Impact of Macroeconomic Determinants on Foreign Portfolio Investment in Nigeria

Foreign capital inflows, including foreign portfolio investments (FPI), significantly contribute to filling Nigeria's domestic saving gap and are important sources of capital formation, technological development, innovative capacity, skills building, and organizational improvements. However, exchange rate fluctuations have controversially impacted FPI flows. Some studies found exchange rate changes increased Nigerian FPI, while others determined a negative relationship. This study examined macroeconomic determinants of FPI in Nigeria from 2011-2022 using quarterly data. Applying OLS modeling after confirming variables were integrated at levels and first differences, results showed exchange rates, inflation, and GDP significantly influenced FPI flows. Specification tests validated model stability. Analysis revealed exchange rate fluctuations substantially drove capital inflow and divestment decisions. Suggesting exchange rate uncertainty discourages long-term FPI, findings imply the need for fiscal policies supporting security and business environment certainty to attract foreign investors. Additionally, raising benchmark interest rates above inflation could ensure positive real returns and promote investments. Overall, creating macroeconomic stability through coordinated fiscal, monetary, and exchange rate policies appears critical for Nigeria to reap the development benefits of sustained foreign portfolio inflows. It therefore, suggested that, Fiscal Authority should create an enabling environment, especially by providing adequate security in the country in order to attract and retain foreign investors in Nigeria. Also, the monetary authority should increase the interest rate (MPR) which is the anchor rate in order to have positive rate of return after considering the rate of inflation in the country. In conclusion, the study recommended for further study especially on foreign direct investment in Nigeria.

Do geographic distances proxy a high probability of foreign divestment? Evidence from Japanese multinational firms

AbstractWe aim to provide an unambiguous explanation for the positive influence of the geographic distance between a firm's home and host country on divestment decisions of Japanese multinational firms’ outbound merger and acquisition (M&A). Our analysis of 868 acquisitions made by 496 firms in 45 countries and regions from 2005 to 2015 highlights the importance of drawing a clear distinction among various foreign divestment motives before inferring the impact of geographic distances rashly, especially whether it is failure‐driven or global business strategy‐driven. We further find that its impact hinges on parent firm‐ and deal‐level attributes, that is, geographic distance is less salient for large firms, young firms, and foreign operations under a complete control mode; however, the opposite was the case for firms with a high debt burden.

PENGARUH MANAJEMEN BERBASIS NILAI TERHADAP KEPUTUSAN DIVESTASI DENGAN RISIKO TERKAIT KEPENTINGAN MANAJEMEN SEBAGAI VARIABEL MODERASI

This study aims to analyze the influence of value-based management on divestment decisions with risks related to management interests as a moderating variable. This study uses the variable MBN Implementation Level as an independent variable, Risk Related to Management Interests as a moderating variable and Divestment Decision as the dependent variable. Sampling used a purposive sampling method from non-financial companies listed on the IDX and obtained a sample of 35 financial report data. Data were analyzed using the Statistical Program for Social Science (SPSS). The results of this study indicate that the level of MBN implementation can increase divestment decisions and risks related to management's interests strengthen the level of MBN implementation of divesment decisions.

The Effects of Rival Foreign Entry and Exit Actions on Foreign Divestment Decisions

The Effects of Rival Foreign Entry and Exit Actions on Foreign Divestment Decisions

Green investment and asset stranding under transition scenario uncertainty

Risks and opportunities related to environmental transition are usually evaluated through the use of scenarios, produced and maintained by international bodies such as the International Energy Agency. This approach assumes perfect knowledge of the scenario by the agent, but in reality, scenario uncertainty is an important obstacle for making optimal investment or divestment decisions. In this paper, we develop a real-options approach to evaluate assets and potential investment projects under dynamic climate transition scenario uncertainty. We use off-the-shelf Integrated Assessment Model (IAM) scenarios and assume that the economic agent acquires the information about the scenario progressively by observing a signal, such as the carbon price or the greenhouse gas emissions. The problem of valuing an investment is formulated as an American option pricing problem, where the optimal exercise time corresponds to the time of entering a potential investment project or the time of selling a potentially stranded asset. To illustrate our approach, we employ representative scenarios from the scenario database of the Network for Greening the Financial System in two energy-related examples: the divestment decision from a coal-fired power plant without Carbon Capture and Storage (CCS) technology and the potential investment into a green coal-fired power plant with CCS. In both cases, we find that the real option value is very sensitive to scenario uncertainty: the value of the coal-fired power plant is reduced by 25% and that of the green coal investment project is reduced by 7% when the agent deduces the scenario by observing carbon emissions, compared to the setting when the true scenario is known. We also find that scenario uncertainty can lead to considerable delays in the implementation of green investment projects, emphasizing the importance of timely and precise climate policy information.

Foreign divestments: a review and research agenda

PurposeForeign divestment of subsidiaries is a growing research field. The global increase in investments has led to more divestments. However, much about the processes and circumstances leading to foreign divestments (FDs) requires further investigation. This study aims to review and consolidate the existing literature on foreign divestment and identify avenues for future research.Design/methodology/approachThis study performs a systematic literature review and bibliometric analysis of studies on FDs to highlight the traditional and emerging perspectives in the field. This work examines foreign divestment theories based on operations, human resources, finance and marketing business functions.FindingsThis study sets forth a basic foreign divestment framework and highlights potential research areas. Future studies should expand to emerging economies, explore complex relationships, distinguish foreign divestment types and identify the limits of various theories and perspectives.Originality/valueThis study discusses traditional theories such as economies of scale, portfolio adjustment, reverse eclectic, real options and transaction cost economies. This study also examines emerging perspectives: attention-based, behavioral, committedness, contingency, favoritism, flexibility, hysteresis, legitimation, network and resource-based views. This study uses traditional and emerging theories to explain foreign divestment decisions in different business functions.

Investment and trading strategies in the maritime sector: an application to the secondhand containership market

As shipping market players operate in a competitive and volatile business environment, their highly capital-intensive investment decisions to target value-generating projects are exposed to critical risks. Therefore, the paper investigates the efficiency of investment strategies based on the combination of technical trading rules and fundamental analysis in selling and purchasing ships in the container shipping market. Using historical datasets of second-hand vessel prices and time-charter rates from October 1996 to June 2021, long-run cointegrating implications and short-run causality spillover effects are examined for three groups of containerships, distinguished by their transportation capacity, viz. 725 TEUs, 1700 TEUs, and 3500 TEUs. In addition, the moving average trading rules are used to indicate the timing of investment or divestment decisions through the analysis period. The results for vessel prices and earnings for 3500 TEU containerships appeared to be more volatile compared to smaller ships (725 TEUs and 1700 TEUs), while time-charter earnings are seen to exert an impact on second-hand prices across all vessel types. Moreover, due to higher volatility, the trading strategies based on price-earning ratios significantly outperform the buy-and-hold strategies for the 3500 TEU and the 1700 TEU containerships. On the contrary, the decision to buy-and-hold smaller container ships (725 TEU) yields higher profits than the active sale and purchase strategy. The insights provided in this paper can be used by multiple stakeholders, such as liner operators, investors, lessors, and researchers.

Let’s Talk About Senior Managers. Investigating Managerial Roles in Foreign Divestment Decisions

Global economy has been damaged severely by the pandemic, macroeconomics and geopolitical tensions, leading to a significant amount of foreign divestment made by several large multinational enterprises. This research delves into roles of top managers at headquarters in foreign divestment through their executive decisions. Adopting the dynamic managerial capabilities framework, we establish the linkage between global dynamic managerial human capital, social capital and managerial cognition on divestment probability. In addition, we examine if a turnover of a chief officer leads to foreign divestment decisions. We further investigate how the influences could be modified by cultural, economic and political differences. Accordingly, we fill the gap voiced by prior scholars about the striking omission of managerial roles in divestment studies and develop our understanding of the microfoundations of the dynamic capabilities. Several theoretical and practical implications have been also discussed in this study.

Danger from a distance: Executives' social distance and multinationals' responses to host‐country terrorist attacks

AbstractResearch SummaryThis article examines whether and under what conditions multinational enterprises (MNEs) are likely to divest a subsidiary exposed to host‐country terrorist attacks. Drawing on construal level theory from social psychology, we propose that the association between subsidiaries' exposure to host‐country terrorist attacks and MNEs' likelihood of divesting these subsidiaries depends on their executives' social distance from the event host country. Based on a sample of Fortune US 100 MNEs and their foreign subsidiaries from 2003 to 2014, we find that on average, MNEs are more likely to divest their subsidiaries when their exposure to host‐country terrorist attacks increases; however, the effect is only prominent in host countries to which MNE executives are socially proximate.Managerial SummaryMNEs confronting terrorism threats in a host country sometimes respond by divesting subsidiaries exposed to the threats even when the high opportunity costs of divestment render this response irrational. We argue that the MNEs' divestment response may not be driven by rational economic calculations but by their executive’ subjective threat perceptions. We investigate how top executives’ subjective threat perceptions, as a function of their social distance from the event host country, influence MNEs’ divestment decisions. We find that on average, MNEs do tend to divest their subsidiaries when they are exposed to a high terrorism threat in a host country; however, they are much less likely to do so when their top executives are socially distant from the focal host country.

Resisting pulling the plug: the role of CEO regulatory focus and board independence in store closure activity

PurposeAlthough being fired up about changes such as firm expansion, chief executive officers (CEOs) have a hard time with changes that involve divesting businesses or downsizing operations. This study aims to examine how a particular psychological process – regulatory focus – serves as a managerial exit barrier in the context of store closings in the US retail industry. This study also examines how a particular corporate governance mechanism, the board of directors, moderates the relationship between CEO regulatory focus and divestment activity.Design/methodology/approachThis study content-analyzed letters to shareholders to measure the regulatory focus of retail CEOs and used negative binomial regression to test the effect of the CEO’s regulatory focus and board independence on store closure activity.FindingsThe two motivation orientations – promotion and prevention – focuses have distinct effects on store closure decisions. As predicted, promotion-focused CEOs, who value attainment and growth, resist “pulling the plug.” Conversely, prevention-focused CEOs, who are more sensitive to losses, are more inclined to close stores. Independent boards decrease the CEOs’ resistance to “pull the plug” only when necessary, which is the case when CEOs have less vigilant tendencies.Research limitations/implicationsThis study contributes to the strategy and marketing literature. It examines an individual-level antecedent of store closure decisions and responds to the call for research on the effect of regulatory focus on divestment decisions.Practical implicationsLeaders themselves can be a source of resistance to change. The findings suggest the importance of boards hiring CEOs psychologically aligned with the firms’ strategic priorities. Promotion-focused CEOs may be a better fit for companies engaged in growth and acquisition. By contrast, prevention-focused CEOs may be a better fit for firms involved in retrenchment and restructuring. Independent boards still have the power to influence CEO decisions in the case of a misfit, as the findings suggest.Originality/valueThis study examines divestment decisions during the “retail apocalypse” and provides empirical evidence for the existence of managerial exit barriers, first introduced by Michael Porter.

EXCESS CAPACITY AND EFFECTIVENESS OF POLICY INTERVENTIONS: EVIDENCE FROM THE CEMENT INDUSTRY

AbstractStrategic interaction among firms may hinder the reduction of excess capacity in a declining industry. Policy interventions that attempt to reduce excess capacity may increase efficiency by accelerating the capital adjustment but may decrease efficiency by increasing the market power of firms and/or by distorting firms' divestment decisions. We study capacity coordination policies—forcing firms to reduce their capacity simultaneously—applied to the Japanese cement industry. Estimation results suggest that these interventions did not increase market power because reduction in capacity resulted in higher utilization of the remaining plants, and did not distort firms' scrappage decisions.

Determinants of fossil fuel divestment in European pension funds

Divestment from fossil fuel companies could help align financial flows with climate targets and reduce the related risk exposure of investors. Yet, investors reach different conclusions whether to divest. In this article, we derive hypotheses for financial and non-financial divestment motives to explore the determinants of divestment. Using a newly compiled data set on the 1000 largest European pension funds, we find that 129, or 13%, of these funds, representing USD 2.6 trillion in assets under management (33%), have divested from fossil fuels. Most of these funds (n = 75, AUM = USD 2.1 trillion) have committed to divesting from coal only, while some have committed to divest from all fossil fuels (n = 16, AUM = USD 109 billion). We find that divestment is more likely among larger and publicly owned pension funds. Among privately owned pension funds, we find that open funds competing for clients are more likely to divest compared with company funds restricted to employees. Hence, we identify size, ownership and market competition as key determinants for divestment decisions. Furthermore, we find weaker evidence for sectoral differences (e.g., higher likelihood in financial sector), albeit independent of carbon intensities, and a positive effect of climate policy stringency.

A 40-year-retrospective of foreign divestment and its implications

Over the past forty years, foreign divestment has received a tremendous attention in international business and management research. While there are excellent previous review studies on the antecedents of the foreign divestment decisions, the implications of the decisions such as divestment mode choices, process and outcome are still not received deserved attention. It leads our knowledge on foreign divestments to be insufficient. This paper traces the history of this research stream over these past four decades using bibliometric and qualitative content analyses covering leading journals and books, with a particular emphasis on the antecedents and implications of the foreign divestments. We highlight the evolution of interest in different contexts, phenomena, theories, and methodologies, along with the factors that have driven interest in these topics. We also offer a research agenda to stimulate new insights and novel work on the variables that relating to divestment decisions of foreign subsidiaries.

Archetypes of Driver Combinations Leading to Foreign Market Exit: An Investigation into European Grocery Retailing

Existing research into retailers’ foreign market exits has uncovered a number of drivers that lead multinational retailers to divest from certain countries. While scholars have investigated these drivers in isolation from one another, combinations of drivers that affect divestment decisions simultaneously remain under-researched despite scholars having indicated their importance and having called for a detailed, more holistic analysis. In this study, using a case study approach and qualitative content analysis of a wide variety of publicly available contemporary documents from different perspectives and experts, we investigate the drivers leading to all 32 country exits of the 50 largest grocery retailers in Europe in the 5-year period between 2014 and 2018. In line with previous research, the study shows the most frequent exit drivers are a low performance of the subsidiary, a low performance of the parent company, and a strategic refocus of the parent company. However, we demonstrate that for most exits, combinations of multiple interrelated drivers at the subsidiary level, the host-country level, and the parent level have a joint influence on retailers’ decisions to exit foreign markets. We also show that exits often include both failure-related drivers and strategy-related drivers. Furthermore, using the configurational approach, we identify exemplary combinations of market exit drivers that occur frequently and propose five archetypes of such combinations that suffice to explain all market exits in the dataset. For future research, we propose extending our typology through the application of a similar approach to different contexts and to use quantitative research based on the qualitative findings to generate more generalizable results.

Global market integration, efficiency orientation, and drivers of foreign subsidiary divestments

Differences in global market integration across industries have important repercussions for MNC strategy and the drivers of manufacturing subsidiary divestment decisions. Global industry integration and the associated competitive pressures lead MNCs to adopt cost efficiency strategies for their subsidiary networks, and subsidiary divestment decisions are strongly driven by labor cost considerations. In non-integrated industries, host country demand conditions are the prime driver of divestments. These patterns are the most salient for MNCs that have aligned their strategy with the global industry environment. Analysis of the divestment hazards of 3827 Japanese manufacturing subsidiaries in 57 countries provides support for these conjectures.

Using Visualization to Support Investment & Divestment Decisions in the Canadian Armed Forces

Many nations’ defence departments use capabilitybased planning to guide their investment and divestment decisions. This planning process involves a variety of data that in its raw form is difficult for decisionmakers to use. In this paper we describe how dimensionality reduction and partition clustering are used in the Canadian Armed Forces to create visualizations that convey how important military capabilities are in planning scenarios and how much capacity the planned force structure has to provide the capabilities. Together, these visualizations give decisionmakers an overview of which capabilities may require investment or may be candidates for divestment.

Debate: Digital revolution and government investment

The digital revolution has upended investment in the private sector over the past 10 years. Rather than investors examining financial statements to inform investment and divestment decisions and to...

Resource Allocation and Resource Redeployment

This symposium focuses on the question of how diversified firms should allocate resources among their different areas of business – a fundamental issue within strategic management research. Despite the importance of the topic, after early classic studies (e.g. Bower, 1970), there was a decline in the strategy field in research in which the topic of resource allocation was in the foreground of the studies. Instead, resource allocation played a secondary role in papers which focused on issues such as international expansion, corporate entrepreneurship initiatives, or divestment decisions (Birkinshaw, 1997; Hoskisson, Johnson, and Moesel, 1994; Tan and Vertinsky, 1996; Wright and Ferris, 1997). Recently, there has been a resurgence in research which directly focuses on the topic of resource allocation and redeployment (for overviews, see Busenbark, Wiseman, Arrfelt, & Woo, 2017; Folta, Helfat, & Karim, 2016; Sengul, Almeida Costa, & Gimeno, 2019). Results from these recent empirical studies yielded mixed findings regarding the question of how efficiently multi-business firms are able to allocate resources internally among their different business units. In order to move our understanding of this important issue forward, there is a pressing need for more theory building and empirical research in corporate strategy. In order to assist in this re-energizing of resource allocation research, it is the goal of this symposium to bring together contributions from different angles on the topic of resource allocation. Specifically, the symposium considers four diverse perspectives on resource allocation; namely regarding (i) innovation-related outcomes of different resource allocation strategies on the headquarters level, (ii) the interrelationships between different areas of business in the portfolio of a diversified firm, (iii) the management of uncertainty when discovering opportunities for resource redeployment, and (iv) a capabilities-based understanding of why some firms are more successful than others in allocating resources. This symposium therefore contributes to the broadening of our understanding about how diversified firms should allocate resources among their different areas of business. Attention to Allocation: The Linkage Between Internal Capital Markets and Innovation Presenter: Matthew Semadeni; Arizona State U. Presenter: John R. Busenbark; U. of Notre Dame Presenter: Wookyung Lee; Arizona State U. Resources Types and Variance in Portfolios of Diversified Companies Presenter: Marco S. Giarratana; IE Business School Presenter: Martina Pasquini; IE Business School Presenter: Juan Santalo; IE Business School Managing Resource Redeployment with Data Science: Discovering Uncertain Sunkenness Presenter: John S. Chen; U. of Florida Presenter: Gwendolyn Kuo-fang Lee; U. of Florida Resource Allocation Capability and the Allocation of Resources in Multi-Business Firms Presenter: Constance E. Helfat; Tuck School of Business at Dartmouth Presenter: Catherine Maritan; Syracuse U.

Home bias in divestment decisions of multinational corporations in the EU

AbstractWe empirically investigate the claim that multinational corporations (MNCs) suffer from a “home bias” in divestment decisions: MNCs prefer to divest from foreign subsidiaries because the “emotional involvement” and the commitment in divesting from domestic subsidiaries is larger. This issue has not been yet empirically explored in the economic literature, although it is quite recurrent in the political debate on MNCs and FDI. Using detailed company‐level data on the EU corporate groups during the economic crisis (2008–2014), we show that, in spite of prima facie empirical evidence of a home bias, the bias disappears when firm‐, country‐, and sector‐specific factors are accounted for.