Understanding foreign divestment: the impacts of economic and political friction

Ha Thi Thu Nguyen; Jorma Larimo; Pervez Ghauri

doi:10.1016/j.jbusres.2021.10.009

Understanding foreign divestment: the impacts of economic and political friction

Ha Thi Thu Nguyen^*
, Jorma Larimo
, Pervez Ghauri

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

190 Downloads (Pure)

Abstract

Past research on foreign divestment has recognized the impact of economic and political differences¹. 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.

Original language	English
Pages (from-to)	675-691
Number of pages	17
Journal	Journal of Business Research
Volume	139
Early online date	19 Oct 2021
DOIs	https://doi.org/10.1016/j.jbusres.2021.10.009
Publication status	Published - Feb 2022

Bibliographical note

Funding Information:
Dr. Jorma Larimo is Professor of International Business at the School of Marketing and Communication, University of Vaasa (UVA). For several years he has been the Head of the Doctoral Programme in Business Studies at UVA and in the Kataja Doctoral Programme in International Business in Finland. He is an EIBA Fellow. His areas of interest include SME internationalization and foreign entry strategies of MNEs, especially FDI, M&A, IJV strategies and performance as well as subsidiary survival. His research has been published in several journals including International Business Review, Journal of International Business Studies, Journal of International Marketing, Management International Review, Journal of World Business, Journal of Global Marketing, European Journal of International Management, Baltic Journal of Management, Journal of East-West Business, and Asia Pacific Journal of Management as well as in several edited books. He is in the editorial board of five different international journals. Currently he is leading a project focusing on divestment, relocation and value creation funded by Academy of Finland.

Publisher Copyright:
© 2021 The Author(s)

Keywords

Economic distance
Economic friction
Equity ownership level
Foreign divestment
Political distance
Political friction

ASJC Scopus subject areas

Marketing

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Cite this

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title = "Understanding foreign divestment: the impacts of economic and political friction",

abstract = "Past research on foreign divestment has recognized the impact of economic and political differences1. 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 = "Economic distance, Economic friction, Equity ownership level, Foreign divestment, Political distance, Political friction",

author = "Nguyen, \{Ha Thi Thu\} and Jorma Larimo and Pervez Ghauri",

note = "Funding Information: Dr. Jorma Larimo is Professor of International Business at the School of Marketing and Communication, University of Vaasa (UVA). For several years he has been the Head of the Doctoral Programme in Business Studies at UVA and in the Kataja Doctoral Programme in International Business in Finland. He is an EIBA Fellow. His areas of interest include SME internationalization and foreign entry strategies of MNEs, especially FDI, M\&A, IJV strategies and performance as well as subsidiary survival. His research has been published in several journals including International Business Review, Journal of International Business Studies, Journal of International Marketing, Management International Review, Journal of World Business, Journal of Global Marketing, European Journal of International Management, Baltic Journal of Management, Journal of East-West Business, and Asia Pacific Journal of Management as well as in several edited books. He is in the editorial board of five different international journals. Currently he is leading a project focusing on divestment, relocation and value creation funded by Academy of Finland. Publisher Copyright: {\textcopyright} 2021 The Author(s)",

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doi = "10.1016/j.jbusres.2021.10.009",

language = "English",

volume = "139",

pages = "675--691",

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AU - Nguyen, Ha Thi Thu

AU - Larimo, Jorma

AU - Ghauri, Pervez

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N2 - Past research on foreign divestment has recognized the impact of economic and political differences1. 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.

AB - Past research on foreign divestment has recognized the impact of economic and political differences1. 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.

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JO - Journal of Business Research

JF - Journal of Business Research

ER -

Understanding foreign divestment: the impacts of economic and political friction

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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