Entry mode irreversibility, host market uncertainty, and foreign subsidiary exits

We examine how the exits of multinational companies’ foreign subsidiaries from host countries are foreshadowed by the irreversibility intrinsic to firms’ entry modes and the environmental uncertainty in host countries. For empirical testing, we run a Cox proportional hazard rate model on STATA 10 and deploy a dataset of Korean foreign direct investments (FDIs) for the period 1990–2007. We find a negative association between the greater irreversibility typical of wholly owned Greenfield investments or full acquisitions and subsidiary exits. We also note that host market uncertainty strengthens the impact of irreversible entry modes on subsidiary exits. Our findings support the argument that irreversible investments and uncertain environments are closely related to the probability of a subsidiary exiting.