Understanding foreign divestment: The impacts of economic and political friction

Ha Thi Thu Nguyen, Jorma Larimo and Pervez Ghauri

Journal of Business Research, 2022, vol. 139, issue C, 675-691

Abstract: Past research on foreign divestment has recognized the impact of economic and political differences11Please note that in this paper we use the term ‘differences’ as a broader-based term that encompasses the literature on distance and on friction.. However, the prior findings remain equivocal. We adopt the Positive Organizational Scholarship perspective to provide more contextualized insights into the effects of economic and political differences on foreign divestment. Specifically, we consider the juxtaposition of national differences and levels of firm interaction with the different contexts. Thus, we develop the concept of friction to assess levels of economic and political differences. We further argue that economic friction will have a curvilinear (U-shaped) effect on foreign divestment, whereas political friction will produce a monotonic (positive) effect. Moreover, we introduce ownership level as a moderator into the main hypotheses. Drawing on data from 2400 foreign subsidiaries of 310 Finnish multinational enterprises, from 1970–2010, we provide support for our main hypotheses, although the moderating effect of ownership levels is not supported. We further compare the effects of differences measured by friction with those measured by distance. Accordingly, our research highlights the importance of detecting specific conditions for the investigation of the impact of economic and political differences in the foreign divestment literature.

Keywords: Foreign divestment; Economic friction; Political friction; Equity ownership level; Economic distance; Political distance (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:139:y:2022:i:c:p:675-691

DOI: 10.1016/j.jbusres.2021.10.009

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