In this study, we argue that foreign subsidiary exit decisions made by managers in multinational corporations (MNCs) are driven by backward- and forward-looking determinants: internal social aspirations and expectations. MNC managers’ internal social comparisons—benchmarking a foreign subsidiary’s past performance against other sister subsidiaries in the same parent firm in the same host country—allow within-parent firm, within-host country comparisons, thereby effectively steering MNC managers’ decisions on whether to maintain or terminate a particular subsidiary. This aspiration setting is importantly bounded by MNC managers’ forward-looking expectations that the subsidiary has a potential to make a turnaround. Using data on Japanese MNCs and their subsidiary exit decisions from 1997 to 2001, we find support for our arguments that a foreign subsidiary is more likely to be terminated if its past performance falls below internal social aspirations. However, this relationship is less pronounced for a subsidiary with a short (vs. long) host country tenure and a subsidiary operating in a politically unstable (vs. stable) environment because such a subsidiary is expected to make a turnaround in the future based on experience accumulation and non-market strategies.
|Title of host publication||Proceedings of the Academy of Management|
|Publisher||Academy of Management|
|Publication status||Published - 2021|
|Event||81st Annual Meeting of the Academy of Management - |
Duration: 29 Jul 2021 → 4 Aug 2021
|Conference||81st Annual Meeting of the Academy of Management|
|Period||29/07/21 → 4/08/21|