Divestment of Foreign Subsidiaries for Deletion and Redeployment

Abstract

We present a novel analysis about factors driving divestment for deletion (DD) and divestment for redeployment (DR) of foreign subsidiaries. While relatively recent studies recognize DR, along with conventionally assumed DD, their empirical analysis leaves some ambiguity concerning how the presence of peer subsidiaries affects DD and DR simultaneously. Adopting a portfolio perspective to foreign subsidiaries, we predict that the presence of related peer subsidiaries increases the hazard rate of DR more than DD. This association between related peer subsidiaries and DR-DD choice is moderated by performance gaps between focal and peer subsidiaries and effective control by parent firms, especially when peer subsidiaries locate outside focal subsidiaries’ host countries. Competing-risk analysis of a unique dataset informing divestment types of foreign subsidiaries strongly supports the argument. Our findings concerning differential impacts of the presence of peer subsidiaries on DD and DR suggest that failing to distinguish between them leads to underestimation of the effect for DR.