Multinational ﬁrms not only make acquisitions, but also frequently divest afﬁliates. Afﬁliate divestiture is the result of many factors, some internal and some external to the ﬁrm. Using detailed conﬁdential survey data of Swedish multinationals, we are able to examine divestiture decisions within the context of the world-wide afﬁliate network of the ﬁrm. In contrast, most existing studies of multinational exit focus on one country only. A model of mergers and acquisitions with ﬁnancing constraints generates predictions regarding the correlation between afﬁliate size and the decision to sell. Consistent with this theory, we ﬁnd that larger afﬁliates are more likely to be divested, but an increase in relative size of an afﬁliate reduces the probability of divestiture. Additional network characteristics, the presence of other afﬁliates nearby and sales of afﬁliates elsewhere, are also positively correlated with divestiture. We ﬁnd no support for the notion of footloose multinationals.
Review of International Economics
Multinational Firms and Plant Divestiture
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