Determinants of Divestment of Foreign Firms in Korea

The determinants of foreign divestment in South Korea

“…In addition, Choi and Ra (2017) collect data of 1,177 number of foreign invested firms in South Korea between 2010 and 2015 using the Korea Credit Information Services and the data analysis, retrieval and transfer system of the Financial Supervisory Service. They limit the type of divestment to business closure, exclude host firms that are established within three years, and use the number of divested firms in the analysis.…”

“…There are a small set of studies conducted on the determinants of foreign divestment in the case of South Korea both in a home or host country perspective. Choi (2013) and Choi and Ra (2017) study firm-level determinants of divestment of Korean MNCs and foreign invested firms in South Korea, respectively. Using logistic regression, Choi (2013) finds total assets and return on sales of the parent firm are the positive determinants, while debt ratio, operating income to sales and advertisement intensity of the parent firm are the negative determinants of Korean MNCs divestment between 2001 and 2011.…”

“…Foreign divestment is generally defined as a voluntary or forced adjustment in the firm ownership structure that involves a transfer of partial or majority-control over a firm from a foreign to a domestic owner, removing investment capital from stocks, bonds or funds (Benito and Welch, 1997; Arte, 2016; Borga et al , 2020). With ambiguity arising from the term “partial adjustment” or “majority control,” some studies perceive withdrawing financial investments in a particular company below 50% of the total number of shares as divestment (Berry, 2012; Han et al , 2019; Lim, 2020), while some studies perceive foreign owner with over 10% of the total number of shares of the firm still have some power to control the firm or influence the firm decision (Choi and Ra, 2017). Moreover, specific types of divestment are considered in several studies; for instance, Borga et al (2020) exclude business closure from foreign divestment, while Han et al (2019) and Chen and Wu (1996) only consider business closure when investigating the patterns of foreign divestment and retention in South Korea.…”

“…Meanwhile, acquisitions of tangible and intangible assets indicate the exit barriers as sunk costs, in which an increase in acquisition of these assets are expected to decrease the divestment probability (Gema et al , 2011; Choi and Ra, 2017; Lim, 2020). Further, Haji and Ghazali (2018) find positive relationship between intangible assets and firm performance.…”