Multinational Firms and Plant Divestiture

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.