Foreign Divestments Research Articles

A Role of Foreign Divestments for Early Internationalizing Firms

A Role of Foreign Divestments for Early Internationalizing Firms

Brand Awareness in Times of Foreign Divestments: Case of Fashion and Food Industries in Russia

Brand Awareness in Times of Foreign Divestments: Case of Fashion and Food Industries in Russia

The Effect of Foreign Divestment on Subsequent Firm Performance: The Moderating Role of Spatial and Temporal Dispersion of Prior Divestment Experience

AbstractPrevious research has stressed the importance of the relationship between foreign divestment and subsequent firm performance. Yet, controversy remains, as some authors suggest that foreign divestment has a positive effect on firm performance, and others propose that foreign divestment has negative performance effects. To help reconcile this controversy, we first explicate existing arguments and argue that in the context of retail (de‐)internationalisation, foreign divestment will have a predominantly negative effect on retailers’ financial performance. We then draw on organisational learning theory to argue that this negative performance effect of foreign divestment is contingent on (a) the spatial dispersion of previously divested foreign operations (i.e. the extent of geographical diversity of the foreign divestments the multinational enterprise [MNE] has conducted over a specified period of time), and (b) the temporal dispersion of previously divested foreign operations (i.e. the time between prior divestment episodes). Drawing on a panel of some of the largest retail MNEs over the 20‐year period 1997–2016, we find that foreign divestment has a negative effect on retailers’ subsequent performance. Our results also indicate that the negative performance effect of foreign divestment is effectively mitigated by retailers’ prior divestment experience in spatially diverse and temporally dispersed settings.

Foreign divestment, economic growth and development in South Africa: an empirical analysis

PurposeThe purpose of this study is to investigate the effect of foreign direct divestments (FDD) on economic growth and development in South Africa for the period 1991–2019.Design/methodology/approachThe non-linear autoregressive distributed lag technique is used for the empirical analysis. Two regression models are specified, one for economic growth and the other for development which is proxied by poverty.FindingsThe empirical results suggest that foreign divestments are detrimental to both economic growth and development. Furthermore, the results suggest that the negative effects of foreign divestments outweigh the positive effects of FDI inflows.Practical implicationsSouth African policymakers should thus use policies that promote the retention of FDI inflows together with those that attract inflows. Furthermore, policies that promote economic freedom such as transparency and reduction in the time frame for granting government permits for business operations are also of paramount importance.Originality/valueMost of the available literature on FDD focuses on the firm perspective. Available studies on the effect of FDD on economic growth do not investigate the effect of divestment on economic development. Economic growth is a necessary but not a sufficient condition for the achievement of socioeconomic development.

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.

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.

Firm-specific resources and foreign divestments via selloffs: Value is in the eye of the beholder

In this paper, by using a large sample of foreign subsidiaries in Spain, we examine what explains their divestment via sell-offs. By integrating resource-based theory with foreign divestment literature, we examine the role that different subsidiary level resources and innovative capabilities play on its likelihood of being divested. We also argue and empirically show that the most influential subsidiary characteristics that determine divestment differ depending on whether the acquiring firm is a host-country firm or a foreign firm. Our results suggest that foreign subsidiaries are less likely to be sold off when they are characterized by high levels of product innovation performance, human capital or have introduced organizational innovations. Moreover, subsidiaries with export-market oriented capabilities were more likely to be divested to other foreign buyers whereas subsidiaries with domestic-market oriented capabilities were more likely to be divested to domestic buyers.

Good for the environment, good for business: Foreign acquisitions and energy intensity

The link between foreign ownership and environmental performance remains a controversial issue. This paper contributes to our understanding of this subject by analyzing the impact of foreign acquisitions on plant-level energy intensity. The analysis applies a difference-in-differences approach combined with propensity score matching to the data from the Indonesian Manufacturing Census for the period 1983–2001 (or 1983–2008 in robustness checks). It covers 210 acquisition cases where an acquired plant is observed two years before and at least three years after an ownership change and for which a carefully selected control plant exists. The results suggest that while foreign ownership increases the overall energy usage due to expansion of output, it decreases the plant's energy intensity. Specifically, acquired plants reduce energy intensity by about 30% two years after acquisition, relative to the control plants. In contrast, foreign divestments tend to increase energy intensity. At the aggregate level, entry of foreign-owned plants is associated with industry-wide reduction in energy intensity.

The Role of Rivals in Foreign Divestments of International Healthcare Systems

This study bridges the research gap between oligopolistic reaction and foreign divestment strategy. Based on a 40 year dataset that captured the divestment decisions of the largest international he...

Foreign divestments from Russia: An exploration of the mediating factors

Foreign divestment (FD) decisions are not purely based on the profitability of a business but also on a company's investing and divesting experience and the degree of uncertainty in markets. The FD procedure is grounded by the level of uncertainty, experience in divesting, and experience in investing. Both internal and external factors are catalysts for the firms’ foreign divestments. The constructs of real options theory, prospect theory and the theory of bounded rationality are three key moderators in the firms’ FD decision‐making.

The investment-divestment relationship: Resource shifts and intersubsidiary competition within MNEs

This paper examines the interdependencies between MNE investment and divestment decisions. We derive a conceptual framework of “segmented intersubsidiary competition” and hypothesize that the competitive pressure of new investments on existing subsidiaries varies by regional dimension. Based on a database of 3524 French MNEs, we analyse intersubsidiary competition and intertemporal adjustment processes of the investment-divestment relationship between 2002 and 2010. Our empirical findings support the theoretical notion of segmented intersubsidiary competition within MNEs: Foreign investments create competitive pressure for foreign subsidiaries to be divested in subsequent periods, where domestic investments spur divestment at home. Inversely, foreign divestments are more likely to create new investment opportunities in the foreign than in the domestic arena. Our differentiations between investments/divestments in EU countries and in non-EU countries shows that the competitive pressure of new investments on existing subsidiaries is mainly limited to the same region.

Divest or Keep a Foreign Subsidiary? The Roles of Learning from Performance Feedback

This study extends performance feedback theory and examines multinational enterprises’ (MNE) decision-making regarding foreign divestments. Distinct from prior behavioral research, I examine the interaction between two causally related goals (parent profitability and sales goals). I challenge the applicability of the well-established sequential attention rule to such a goal relationship, and propose a new parallel, complementary-driven mechanism for how decision makers allocate their attention between goals. When decision makers perform a causal analysis during problemistic search resulting from poor performance in parent profitability, poor performance of a parent sales goal (a sub-goal of parent profitability) catches decision makers’ attention and is interpreted as a cause of poor parent profitability. Given that prior research suggests that solutions usually address the causes of problems, I argue that a parent sales goal is activated when the parent profitability goal is below the aspiration level in such a case, which is contrary to what the sequential- attention rule predicts. As foreign divestment may impede the MNE from achieving sales growth, the preference for foreign divestment as a solution to profitability problems may fall. In addition, I examine the interaction between learning from performance feedback and experiential learning from subsidiary operations.

Foreign Ownership, Employment and Wages in Brazil: Evidence from Acquisitions, Divestments and Job Movers

How much do developing countries benefit from foreign investment? We contribute to this question by comparing the employment and wage practices of foreign and domestic firms in Brazil, using detailed matched firm-worker panel data. In order to control for unobserved worker differences, we examine both foreign acquisitions and divestments and worker mobility, including the joint estimation of firm and worker fixed effects. We find that changes in ownership do not tend to affect wages significantly, a result that holds both at the worker- and firm-levels. However, divestments are related to large job cuts, unlike acquisitions. On the other hand, movers from foreign to domestic firms take larger wage cuts than movers from domestic to foreign firms. Moreover, on average, the fixed effects of foreign firms are considerably larger than those of domestic firms, while worker selection effects are relatively small.

DOES HOME COUNTRY INSTITUTIONAL QUALITY MATTER FOR FOREIGN ASSET DIVESTITURES?

Foreign divestments have become a regular feature of global investment patterns. These divestments have mainly been explained by changes in the economic and institutional factors of the host countries. Recently, as institutional quality has improved in emerging economies, perceived risks have decreased and divestments can no longer be fully explained by host country factors. This paper examines the effects of a firm's home country institutional quality on its divestment decisions in foreign markets. It also studies whether these factors affect developed and developing host countries differently during normal and crises years.

Do Korean Firms' Foreign Divestments Increase Shareholder Wealth?

Do Korean Firms' Foreign Divestments Increase Shareholder Wealth?

Foreign and Domestic Divestments: Evidence on Valuation Effects of Plant Closings

This study examines the valuation consequences of domestic and foreign divestments by comparing the stock price reaction to announcements of domestic plant closings and foreign plant closings. A domestic plant closing could indicate firm-wide problems and impending firm deterioration. A foreign plant may serve to exploit arbitrage opportunities specific to that plant location. Closing a foreign plant need not signify firm-wide problems. Our comparison of stated reasons for closings supports these propositions. Therefore, foreign plant closing announcements should produce a smaller stock price decline that domestic plant closing announcements. Empirical results indicate a significant negative stock price reaction for domestic plant closings and an insignificant negative stock price reaction for foreign plant closings. Differences in stock price reaction remain after controlling for firm-specific factors.