The Curvilinear Impact of Cultural Friction on Foreign Divestment

Ha Nguyen (), Jorma Larimo and Douglas Dow ()
Additional contact information
Ha Nguyen: University of Sussex
Jorma Larimo: University of Vaasa
Douglas Dow: University of Melbourne

Management International Review, 2024, vol. 64, issue 2, No 2, 199-244

Abstract: Abstract International business scholars have long recognized the potential influence of cultural differences on foreign divestment; however, the empirical results are mixed. Our study helps resolve this contradiction and contribute to the existing literature in three ways. First, we advocate the use of cultural friction metric, instead of the more traditional cultural distance approach. This overcomes a key limitation in the modelling the impact of cultural differences. The friction construct metric includes an index of firm-specific factors, referred to as the degree of ‘cultural interaction’. This index moderates the impact of cultural distance, reflecting firm—level differences. We also build on calls for more Positive Organizational Scholarship by challenging the negative bias in the international business literature and propose a curvilinear effect of cultural differences on divestment probability. Lastly, we investigate a potential boundary condition—the moderating effect of entry mode on the main hypothesis. Our empirical sample include 2120 Finnish foreign subsidiaries operating in 40 countries during 1970–2010. Our analyses confirm that the cultural differences, when measured by the friction metric, appear to be a significant and superior predictor of subsidiary divestment probability, and that the relationship appears to be U-shaped. Our robustness analyses also highlight the importance of which cultural framework is applied and controlling for selection bias.

Keywords: Foreign divestment; Subsidiary performance; Cultural friction; Cultural distance; Cultural distance paradox; Entry mode (search for similar items in EconPapers)
Date: 2024
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11575-024-00528-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:manint:v:64:y:2024:i:2:d:10.1007_s11575-024-00528-6

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/11575

DOI: 10.1007/s11575-024-00528-6

Access Statistics for this article

Management International Review is currently edited by Michael-Jörg Oesterle and Joachim Wolf

More articles in Management International Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().