Home bias in divestment decisions of multinational corporations in the EU

• Author: Giuseppe Vittucci Marzetti,Laura Resmini
• Published date: 01 August 2020
• DOI: http://doi.org/10.1111/roie.12471
• Date: 01 August 2020

Rev Int Econ. 2020;28:799–813. wileyonlinelibrary.com/journal/roie

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799

© 2020 John Wiley & Sons Ltd

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INTRODUCTION

The European Union (EU) is one of the most important areas in the world as a source and destination

of foreign direct investment (FDI). In 2007, EU FDI inflows reached the peak level of $798 billion,

about 43% of total world inflows. In the Great Recession in 2008, inflows decreased dramatically.

In 2014, FDI inflows to the EU countries worth $258 billion, accounting for 21% of the world total.

Inflows fell in 18 out of 28 European countries. During the same period, inward FDI stocks in the EU

countries increased on average by 1.7% per year. This notwithstanding, the EU share of inward FDI

stocks fell from 40% in 2007 to 32% in 2014 (UNCTAD, 2015).

Although FDI tends to reflect long-lasting interest in foreign operations, these figures suggest that

divestment has been widespread; and this could raise concerns over the stability of foreign invest-

ments, especially during periods of economic turmoil. Indeed, many countries pursue active policies

for attracting FDI. These policies are based on the expected benefits from foreign investment, which

Received: 14 May 2019

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Revised: 30 January 2020

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Accepted: 5 February 2020

DOI: 10.1111/roie.12471

ORIGINAL ARTICLE

Home bias in divestment decisions of multinational

corporations in the EU

LauraResmini1,2

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GiuseppeVittucci Marzetti3

1Department of Business and Law,

University of Milano-Bicocca, Milan, Italy

2CERTeT, Bocconi University, Milan, Italy

3Department of Sociology and Social

Research, University of Milano-Bicocca,

Milan, Italy

Correspondence

Giuseppe Vittucci Marzetti, Department of

Sociology and Social Research, University

of Milano-Bicocca, Via Bicocca degli

Arcimboldi 8, 20126 Milan, Italy.

Email: giuseppe.vittucci@unimib.it

Abstract

We empirically investigate the claim that multinational cor-

porations (MNCs) suffer from a “home bias” in divestment

decisions: MNCs prefer to divest from foreign subsidiaries

because the “emotional involvement” and the commitment

in divesting from domestic subsidiaries is larger. This issue

has not been yet empirically explored in the economic lit-

erature, although it is quite recurrent in the political debate

on MNCs and FDI. Using detailed company-level data

on the EU corporate groups during the economic crisis

(2008–2014), we show that, in spite of prima facie empiri-

cal evidence of a home bias, the bias disappears when firm-,

country-, and sector-specific factors are accounted for.

JEL CLASSIFICATION

C21; D22; F23; G34; L25