In this paper, we claim that ownership is a key determinant of the firms' divestment-reinvestment sequence in a foreign country. Building on the notion of ‘relational vs. transactional ownership’, we distinguish between relational-type firms (namely, family-owned and state-owned firms), and transactional-type firms (privately non-family-owned firms). We argue that relational-type firms are less likely to both divest from, and reinvest in, a given foreign country. In fact, relational owners set a lower performance threshold of intervention than transactional ones; additionally, in order to turn the tide, the former often increase resource injection when subsidiary performance falls below the threshold. Such an escalation of commitment increases sunk costs and further decreases the likelihood of divesting the subsidiary. Moreover, when a divestment occurs, the memory of high sunk costs incurred reduces the propensity to reinvest in the same host country. We test our conceptual framework on a large sample of investments, divestments and subsequent re-entries undertaken in the period 2000–2015 by 602 Italian firms. Our econometric findings corroborate our hypotheses, thus contributing to the literature on the interdependencies between divestment and reinvestment choices, and their relationships with corporate ownership.

The divestment-reinvestment sequence in foreign countries: The role of relational vs. transactional ownership / Mariotti, SERGIO GIOVANNI; Marzano, Riccardo; Piscitello, Lucia. - In: LONG RANGE PLANNING. - ISSN 0024-6301. - 56:(2023). [10.1016/j.lrp.2023.102306]

The divestment-reinvestment sequence in foreign countries: The role of relational vs. transactional ownership

Sergio Mariotti
Co-primo
;
Riccardo Marzano
Co-primo
;
2023

Abstract

In this paper, we claim that ownership is a key determinant of the firms' divestment-reinvestment sequence in a foreign country. Building on the notion of ‘relational vs. transactional ownership’, we distinguish between relational-type firms (namely, family-owned and state-owned firms), and transactional-type firms (privately non-family-owned firms). We argue that relational-type firms are less likely to both divest from, and reinvest in, a given foreign country. In fact, relational owners set a lower performance threshold of intervention than transactional ones; additionally, in order to turn the tide, the former often increase resource injection when subsidiary performance falls below the threshold. Such an escalation of commitment increases sunk costs and further decreases the likelihood of divesting the subsidiary. Moreover, when a divestment occurs, the memory of high sunk costs incurred reduces the propensity to reinvest in the same host country. We test our conceptual framework on a large sample of investments, divestments and subsequent re-entries undertaken in the period 2000–2015 by 602 Italian firms. Our econometric findings corroborate our hypotheses, thus contributing to the literature on the interdependencies between divestment and reinvestment choices, and their relationships with corporate ownership.
2023
Relational vs; transactional ownership; Divestment-reinvestment sequence; Family-owned firms; State-owned firms; Escalation of commitment;
01 Pubblicazione su rivista::01a Articolo in rivista
The divestment-reinvestment sequence in foreign countries: The role of relational vs. transactional ownership / Mariotti, SERGIO GIOVANNI; Marzano, Riccardo; Piscitello, Lucia. - In: LONG RANGE PLANNING. - ISSN 0024-6301. - 56:(2023). [10.1016/j.lrp.2023.102306]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1673764
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