Performance interplays: host market institutional factors and divestment of foreign subsidiaries

Purpose This study examines how the interplays between subsidiary performance and host market institutional factors affect subsidiary divestment. This study specifically explores how the promoting effect of subsidiary's low performance is moderated by escalating or retarding effects of demand uncertainty, GDP growth rates, competition, and M&A market development. Design/methodology/approach We employed panel data analysis of Korean overseas manufacturing subsidiaries and adopted a multilevel Cox hazard rate model to test how foreign subsidiaries were likely to be divested relative to their benchmarks at risk. Findings Our empirical examination of Korean overseas manufacturing subsidiaries finds that the promoting effect of a subsidiary's low performance relative to its benchmarks on divestment is negatively moderated by host-market demand uncertainty and GDP growth rates, while it is positively moderated by market competition and M&A market development. Originality/value This study contributes to the foreign divestment literature by examining how host-market institutional factors interact with subsidiary performance to determine the timing of divestment for foreign subsidiaries.