Abstract

Past literature has often explained withdrawal decisions from the host country regarding financial performance, suggesting that poor performance of foreign subsidiaries or divisions forces the parent company to withdraw to avoid further losses. However, decision-makers sometimes exhibit an escalation of commitment, where they increase investment despite poor performance in the host country, refusing to acknowledge investment failure. Additionally, companies might abandon profitable business units to avoid uncertainty, resulting in a lack of convergence between host country performance and withdrawal decisions. This study re-examines the impact of investment performance in mainland China on withdrawal decisions based on firm behavior and prospect theory theories. Using data from the Taiwan Economic Journal (TEJ) database, the study focuses on 506 publicly listed Taiwanese electronic information companies that invested in the Chinese market from 2016 to 2020, yielding 2,530 observations for empirical analysis. The analysis was conducted using two-stage research method (Heckman, 1979). The findings reveal an inverted U-shaped relationship between investment performance in China and withdrawal decisions when the investments are profitable. Conversely, firms are less likely to withdraw from China when investments are unprofitable. Additionally, we found a positive relationship between withdrawal from China and market performance. Finally, correction factors and decision errors are statistically significant, effectively controlling for selection bias.  

Keywords

risk-takingdivesture decisionperformance feedbackselection bias