Corporate consolidation and refocusing by means of disinvestments are important strategy options for firms (e.g., Bowman and Singh, 1993; Harrigan, 1981). In many cases, firms try to strengthen their competitive position by downsizing an overdiversified business portfolio (Hoskisson and Hitt, 1994). In addition to divestment of business lines, firms may also decide to withdraw parts of their international network (Benito, 2005; Boddewyn, 1979). A growing body of research examines the determinants of international divestment decisions (e.g., Dhanaraj and Beamish, 2009; Kronborg and Thomsen, 2009; Mudambi and Zahra, 2007). However, to date, little is known about the performance outcomes of these decisions. This study addresses this question by analyzing the immediate financial consequences of firms’ decisions to pull out of host countries in a multinational production network.

Facing uncertain future developments at the moment of investment, firms often evaluate their international activities differently over time and decide to retrace previously made foreign direct investment (FDI) decisions (e.g., Bane and Neubauer, 1981; Berry, 2013). Discrepancies between expected and actual outcomes of foreign investments can stem from diverse characteristics at the subsidiary, host country, and parent firm levels (Berry, 2013; Mata and Portugal, 2000). In regard to the subsidiary’s investment mode, joint ventures and acquired affiliates induce more coordination problems and show a higher propensity to be divested than wholly owned subsidiaries and greenfield investments, respectively (Hennart et al., 1998; McCloughan and Stone, 1998; Ogasavara and Hoshino, 2008). At the host-country level, unfavorable market conditions seem to reduce the likelihood that a foreign affiliate will survive (Benito, 1997). Inexperience or inadequate technological resources of parent firms can also lead to higher divestment propensities (Belderbos, 2003; Delios and Beamish, 2001).

From a network perspective, foreign subsidiaries not only enable firms to capture new demand markets or access valuable production resources (e.g., Dunning, 1988), but they also enhance the efficiency of a multinational production network (e.g., Ghoshal and Bartlett, 1990; Jarillo and Martínez, 1990). A firm that maintains incorporated production sites that produce interchangeable outputs in a multiplicity of host countries possesses “operational flexibility” to shift production tasks temporarily across locations in response to short-term cost differentials (de Meza and van der Ploeg, 1987; Kogut, 1985). The divestment propensity of those affiliates depends on their value to the production system as a whole. Foreign affiliates that do not sufficiently contribute to overall production efficiency are more likely to be divested (Belderbos and Zou, 2009; Chung et al., 2008).