Multinational Firms and Plant Divestiture

Norback, Pehr-Johan and Tekin-Koru, Ayca and Waldkirch, Andreas (2013): Multinational Firms and Plant Divestiture.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Direct Investment, Multinationals, Divestiture
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business

References

Alfaro, Laura and Andrew Charlton, 2009. "Intra-Industry Foreign Direct Investment," American Economic Review 99(5): 2096-2119.

Alvarez, Roberto and Holger Görg, 2009. "Multinationals and Plant Exit: Evidence from Chile," International Review of Economics and Finance 18(1): 45-51.

Antràs, Pol, 2003. "Firms, Contracts, and Trade Structure," Quarterly Journal of Economics 118(4): 1375-1418.

Antràs, Pol and Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy 112(3): 552-80.

Audretsch, David B., 1995. "The Propensity to Exit and Innovation," Review of Industrial Organization 10(5): 589-605.

Audretsch, David B. and John J. Siegfried (Eds.), 1992. Empirical Studies in Industrial Organization: Essays in Honor of Leonard W. Weiss. Vol. 16. Norwell, Mass. and Dordrecht: Kluwer Academic.

Baldwin, John R. and Beiling Yan, 2010. "Death of Canadian Manufacturing Plants: Heterogeneous Responses to Changes in Tariffs and Real Exchange Rates," Economic Analysis Research Paper Series. Statistics Canada (forthcoming).

Barro, Robert J. and Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950--2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.

Berg, Aron, Norbäck, Pehr-Johan and Lars Persson, 2012. "International Mergers with Financially Constrained Owners". Working Paper No. 927, Research Institute of Industrial Economics.

Bernard, Andrew B., Eaton, Jonathan, Jensen, J. Bradford and Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review 93(4): 1268-90.

Bernard, Andrew B. and J. Bradford Jensen, 2007. "Firm Structure, Multinationals, and Manufacturing Plant Deaths," The Review of Economics and Statistics 89(2): 193-204.

Bernard, Andrew B., Jensen, J. Bradford and Peter K. Schott, 2006. "Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants," Journal of International Economics 68(1): 219-37.

Bernard, Andrew B. and Fredrik Sjöholm, 2003. "Foreign Owners and Plant Survival," National Bureau of Economics Working Paper 10039.

Blonigen, Bruce A., Davies, Ronald B. and Keith Head, 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," American Economic Review 93(3): 980-94.

Brainard, S.Lael., 1997. "An Empirical Assessment of the Proximity-Concentration Trade-Off between Multinational Sales and Trade," American Economic Review 87(4): 520-44.

Braconier, Henrik, Norbäck, Pehr-Johan and Dieter Urban, 2005. "Multinational Enterprises and Wage Costs: Vertical FDI Revisited," Journal of International Economics 67(2): 446-70.

Burke, Andrew, Görg, Holger and Aoife Hanley, 2008. "The Impact of Foreign Direct Investment on new Firm Survival in the UK: Evidence for Static versus Dynamic Industries," Small Business Economics 31(4): 395-407.

Carr, David L., Markusen, James R. and Keith E. Maskus, 2001. "Estimating the Knowledge-Capital model of the Multinational Enterprise," American Economic Review 91(3): 693-708.

Caves, R. (2007) Multinational Enterprise and Economic Analysis, Cambridge University Press.

Conway, P. and G. Nicoletti, 2006. "Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and Highlights," OECD Economics Department Working Paper No. 530.

Dixit, Avinash K., and Robert S. Pindyck, 1994. Investment under Uncertainty. Princeton, NJ: Princeton University Press.

Dunne, Timothy, Klimek, Shawn D. and Mark J. Roberts, 2005. "Exit from Regional Manufacturing Markets: The Role of Entrant Experience," International Journal of Industrial Organization 23(5-6): 399-421.

Dunne, Timothy, Roberts, Mark J. and Larry Samuelson, 1989. "The Growth and Failure of U.S. Manufacturing Plants," Quarterly Journal of Economics 104(4): 671-98.

Ekholm, K. & Hesselman, M., 2000. "The Foreign Operations of Swedish Manufacturing Firms: Evidence from a Survey of Swedish Multinationals 1998," Research Institute of Industrial Economics Working Papers 540, Research Institute of Industrial Economics (IFN).

Ericson, Richard and Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies 62(1): 53-82.

Geroski, P.A., 1991a. Market Dynamics and Entry. Blackwell, Oxford, UK.

Geroski, P. A., 1991b. "Domestic and Foreign Entry in the United Kingdom: 1983-1984," In: Geroski, P. A. and Swalbach, J. (Eds) Entry and Market Contestibility: An International Comparison. Blackwell, Oxford, UK.

Görg, Holger and Eric Strobl, 2003. "`Footloose' Multinationals," The Manchester School 71(1): 1-19.

Greenaway, David, Gullstrand, Joakim and Richard Kneller, 2008. "Surviving Globalisation," Journal of International Economics 74(2): 264-77.

Greenaway, David, Gullstrand, Joakim and Richard Kneller, 2009. "Live or Let Die? Alternative Routes to Industry Exit," Open Economies Review 20(3): 317-37.

Grossman, Gene M. and Elhanan Helpman, 2004. "Managerial Incentives and the International Organization of Production," Journal of International Economics 63(2): 237-62.

Grossman, Gene M., Helpman, Elhanan and Adam Szeidl, 2006. "Optimal Integration Strategies for the Multinational Firm," Journal of International Economics 70(1): 216-38.

Hakkala, Katariina and David Zimmermann, 2005. "Foreign Operations of Swedish Manufacturing Firms. Evidence from the IUI Survey On Multinationals 2003," Working Paper No. 650, The Research Institute of Industrial Economics, Stockholm, Sweden.

Hopenhayn, Hugo A., 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica 60(5): 1127-50.

Inui, Tomohiko, Kneller, Richard, Matsuura, Toshiyuki and Danny McGowan, 2010. "Globalisation, Multinationals and Productivity in Japan's Lost Decade," Nottingham University Business School Research Paper No. 2010/04.

Jehiel, Philippe and Benny Moldovanu, 1995. "Resale Markets and the Assignment of Property Rights," CEPR Discussion Papers 1196, C.E.P.R. Discussion Papers.

Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica 50(3): 649-70.

Kaplan, Steven N. and Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," Quarterly Journal of Economics 112(1): 169-215.

Markusen, James R., 2002. Multinational Firms and the Theory of International Trade. The MIT Press, Cambridge.

Mata, José and Pedro Portugal, 2004. "Patterns of Entry, Post-entry Growth and Survival," Small Business Economics 22(3-4): 283-98.

Melitz, Marc J., 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica 71(6): 1695-1725.

Nelson, Richard R. and Sidney G. Winter, 1982. "The Schumpeterian Tradeoff Revisited," American Economic Review 72(1): 114-32.

Olley, G. Steven and Ariel Pakes, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica 64(6): 1263-97.

Pakes, Ariel and Richard Ericson, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory 79(1): 1-45.

Siegfried, John J. and Laurie Beth Evans, 1994. "Empirical Studies of Entry and Exit: A Survey of the Evidence," Review of Industrial Organization 9(2): 121-55.

Taymaz, Erol and Sule Özler, 2007. "Foreign Ownership, Competition, and Survival Dynamics," Review of Industrial Organization 31(1): 23-42.