Home bias in divestment decisions of multinational corporations in the EU

Abstract

We empirically investigate the claim that multinational corporations (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 literature, 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 empirical evidence of a home bias, the bias disappears when firm‐, country‐, and sector‐specific factors are accounted for.