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NTU Management Review Vol. 34 No. 3 Dec. 2024

2. Methodology and Research Design

The present study focuses on publicly listed Taiwanese listed electronic information
companies that had investments in China between 2016 and 2020. This study collects

2530 observations regarding 506 firms for empirical analysis and employs Heckman’s
two-stage research method (Heckman, 1979). In the first stage, we construct a model for
firm divestiture decisions and compute corresponding standard normal distribution values
to enable calculation of the Inverse Mill’s Ratio, which serves as a correction factor for

selection bias.
In the second stage, we assess the effect of divesting from China on market
performance. To account for sample selection bias, we categorize observations into two
In the second stage, we assess the effect of divesting from China on market performance. To
In the second stage, we assess the effect of divesting from China on market performance. To
account for sample selection bias, we categorize observations into two groups, namely
groups, namely the divestiture group and the non-divestiture one. We also construct the
account for sample selection bias, we categorize observations into two groups, namely the
divestiture group and the non-divestiture one. We also construct separate models for each group,
separate models for each group, with sample selection correction factors being
divestiture group and the non-divestiture one. We also construct separate models for each group,
with sample selection correction factors being incorporated to correct for bias and to ensure that
with sample selection correction factors being incorporated to correct for bias and to ensure that
incorporated to correct for bias and to ensure that regression coefficient estimates are
regression coefficient estimates are unbiased and approaching a normal distribution.
regression coefficient estimates are unbiased and approaching a normal distribution.
unbiased and approaching a normal distribution.
We apply Heckman’s two-stage method to obtain the firm’s performance function, whi
We apply Heckman’s two-stage method to obtain the firm’s performance function, ch is
We apply Heckman’s two-stage method to obtain the firm’s performance function, which is
expressed as:
which is expressed as:
expressed as:
� , (1)
, (1)
�
(1)

�
where represents the market performance of a firm, is a vector of explanatory variables,
where represents the market performance of a firm, is a vector of explanatory variables, �
where Y represents the market performance of a firm, X is a vector of explanatory
is the regression coefficient vector, and is the error term.
is the regression coefficient vector, and is the error term.
variables, β' is the regression coefficient vector, and u is the error term.
In consideration of sample selection bias, equations (2) and (3) represent the firm’s divestiture
In consideration of sample selection bias, equations (2) and (3) represent the firm’s
In consideration of sample selection bias, equations (2) and (3) represent the firm’s divestiture
decision function and performance function, respectively, and are expressed as:
decision function and performance function, respectively, and are expressed as:
divestiture decision function and performance function, respectively, and are expressed as:
∗ ≥ 5% ( ),
∗
�
∗
≥ 5% ( ),
∗
�
(2)
∗ < 5% ( ), (2)
�
∗
∗
< 5% ( ), (2)
�
∗
� , (3
(3))
�
, (3)

�
�
� �
�
�
� �
* ∗ is an unobserved variable, is a set of firm characteristics in equation (2) and
where
where is an unobserved variable, is a set of firm characteristics in equation (2)
∗
where D is an unobserved variable, Z is a set of firm characteristics in equation (2) and and
instrumental variables that affect the decision to divest, and is the error term.
instrumental variables that affect the decision to divest, and is the error term.
instrumental variables that affect the decision to divest, and v is the error term.
According to equation (3), when D is greater than or equal to 5%, only the market market
∗ is greater than or equal to 5%, only the
According to equation (3), when
* ∗
According to equation (3), when is greater than or equal to 5%, only the market
performance of firms that have divested from China are being observed. Therefore, to accurately
performance of firms that have divested from China are being observed. Therefore, to
performance of firms that have divested from China are being observed. Therefore, to accurately
estimate the performance function of a firm that has divested from China, we need to adjust the
estimate the performance function of a firm that has divested from China, we need to adjust the
model to obtain equation (4), which is expressed as:
model to obtain equation (4), which is expressed as:
25
� )
�
( | ) ( | )
( | ) ( |
� ( | )
�
�
( | )

�
� �
� �
�
�

� �
� �∅( ( )�
�∅( ( )� � �
��
� �
� �
� � �� �
(4)
� ,
�
, (4)

� �
� �
where is the inverse Mill’s ratio or Heckman’s lambda (i.e., the correction for self-selection).
where is the inverse Mill’s ratio or Heckman’s lambda (i.e., the correction for self-selection).
In the second stage, the performance function of a firm that divested from China, that is, the
In the second stage, the performance function of a firm that divested from China, that is, the
inverse Mill’s ratio , is included in the subsequent analysis. Therefore, the performance function of
inverse Mill’s ratio , is included in the subsequent analysis. Therefore, the performance function of
a firm that disinvested from China can be redefined as:
a firm that disinvested from China can be redefined as:
� . (5)
�
. (5)

� �
�
�
� �
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