Multinational firms and plant divestiture

Multinational enterprises frequently start, acquire, close and divest affiliates. There is a large literature on restructuring, which focuses on start-ups and acquisitions. The empirical literature on plant survival focuses largely on exit of plants, while the decision to sell (divest) is hardly explored. Moreover, papers in this vain usually provide evidence from a single country. An example is Bernard and Jensen (2007) which focuses on plant closure in U.S. manufacturing. In contrast, this paper uses detailed survey data of Swedish multinationals to examine the characteristics that result in plant divestiture at the affiliate, firm, industry, country and regional level. The exercise takes advantage on a question on the 2003 questionnaire that specifically asks about plant divestiture/closure as well as acqusition/start-up. We provide propositions drawn on a straightforward model from Berg et al  (2012) in which the primary motive to divest an affiliate is to finance other investments in the network of the MNC. Liquidity constraints prevent such an investment without divestiture. In line with conclusions from our model, we find that larger affiliates are more likely to be divested, since they tend to be more productive and thus more attractive acquisition targets; and that these affiliates are small relative to the other operations of the firm in the same country or region, suggesting that they are the less important elements of a firm's production network. We also find that divestiture begets divestiture, but acquisition does not, thus casting doubt on the notion of footloose multinationals. Several firm, industry and country characteristics also matter.