Why do subsidiaries divest? The role of subsidiary performance, slack resources, and sunk costs

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Chen Lu-Jui
Lee Wen-Ruey
Hsu Yu-Hsuan


The subsidiary is an important player in the global strategy of MNEs. However, in the face of uncertainty and competition, the decision to divest a subsidiary from a market becomes a critical decision for MNEs. This study suggests that the factors for divesting subsidiaries are related not only to the performance of the subsidiary but also to slack resources and sunk costs. The study analyzed 254 subsidiaries in Taiwan and found that the better the subsidiary's performance is, the less the subsidiary would decide to divest from the market. In terms of slack resources, it was found that the subsidiary with slack resources would be a moderating variable with a positive impact. In addition, the presence of sunk costs reinforces the positive effect of slack resources on the relationship between subsidiary performance and the nondivestment of the subsidiary. Overall, this study demonstrates the significance of subsidiary performance on decision-making and explains the influence of slack resources and sunk costs.


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Chen Lu-Jui, Lee Wen-Ruey, & Hsu Yu-Hsuan. (2022). Why do subsidiaries divest? The role of subsidiary performance, slack resources, and sunk costs. Asian Academy of Management Journal. Retrieved from https://ejournal.usm.my/aamj/article/view/594
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