It Never Rains, But It Pours: The Effects of Negative Performance Feedbacks and Strategic Pressures on Corporate Divestment Decisions

This study examines how industry rivals affect corporate divestment decisions. Based on the performance feedback theory, we hypothesize that performance shortfall of a subsidiary relative to the smaller industry rivals increases divestment likelihood, because those rivals serve as a survival threshold of the subsidiary. Furthermore, negative performance feedback from a parent firm and its industry peers could strengthen this relationship. By contrast, we found that the expansion orientation toward the same target location by industry peers of a parent firm disincentivizes the firm to forgo its market presence and consequently decrease divestment likelihood.