Why divest foreign operations and which subsidiary to close? This study seeks to advance our understanding of foreign divestment by offering a novel explanation from a dynamic network perspective. We posit that subsidiary exit can bring potential network changes to parent firms, the parent firms thus need to weigh the possible network losses in determining whether and which subsidiary to close. This argument gains robust support from our analysis of Japanese firms’ foreign investment data between 1994 and 2019. We find that the greater the expected losses in a parent firm’s network position (i.e., centrality, status, and brokerage opportunities) resulting from the exit of a foreign subsidiary, the less likely the subsidiary will be closed. Moreover, while the parent firms have strong motives to close the poor-performing subsidiaries, we find that they do adjudicate between performance and network such that those subsidiaries are poor in performance but important in the network may not be closed. We further reveal that such network impacts in a parent firm’s foreign divestment decisions are contingent on its international orientation and geographic proximity with its neighboring firms. These findings shed new light on foreign divestment and contribute to the literature on network changes and corporate behaviors.
