Parent-Subsidiary Relational Factors and Their Influence on Foreign Subsidiary Sell-Offs

This study investigates the influence of a range of firm- and country- level factors on parent firms’ sell-off of their foreign subsidiaries. These identified firm- and country-level factors are conceptualised as parent-subsidiary relational factors because they affect the relationships between parent firms’ and their subsidiaries. Additionally, the study investigates whether the influence of these factors differs between manufacturing and non-manufacturing parent firms. While previous studies have shown the importance of factors that impact parent-subsidiary relationships on parent firms’ divestment decisions, knowledge about the influence of these firm- and country-level factors on the parent-subsidiary relationships towards foreign subsidiary sell-offs is limited or underdeveloped. As a result, this brought about the need for this study to investigate these factors and their influence on the sell-off of foreign subsidiaries.

Data were collected using multiple secondary sources. Two database packages from the Bureau van Dijk were used – the Zephyr database was used to identify multinational firms that completed their foreign subsidiary sell-offs within the study period, and the Osiris database was used to gather information relating to the parent firms and their subsidiaries in terms of size, industry, location/geography, profitability/turnover and age. Other sources used included a publication from the British Council on countries and their official languages, the World Development Indicators from the World Bank for host country growth, and the Euler Hermes 2016 publication for country risk factors. Based on the datasets, the study used a quantitative approach with the logistic regression analysis to analyse the obtained data.

The results indicate that firm-level factors such as subsidiary size and profitability, in addition to country-level factors such as language commonality and geographical linkage positively influenced the sell-off of foreign subsidiaries, regardless of the parent firms’ industry affiliations. The results also indicate that the host country growth has a negative influence on the sell-off of foreign subsidiaries in manufacturing parent firms but not in their non-manufacturing counterparts and that the symmetrical linkage has a negative influence on foreign subsidiary sell-offs in non-manufacturing parent firms but not in their manufacturing counterparts. Additionally, the subsidiary’s age was found not to have any influence on the sell-off of foreign subsidiaries, regardless of the parent firms’ industry affiliations.

This study contributes to the existing body of knowledge on foreign subsidiary sell-offs with the conceptual frameworks that explicitly captures parent-subsidiary relationships with the conceptualisation and measurement of these firm- and country-level factors as parent-subsidiary relational factors. The study also contributes to the debate on whether and to what extent these firm- and country-level factors influence parent firms’ on the sell-off of their foreign subsidiaries, and the significant differences in the influence towards foreign subsidiary sell-offs based on the parent or multinational firms’ core industry affiliations.