Understanding divestment from an Uppsala school perspective

Abstract

Firms from the energy sector are being pressed to increase their orientation towards climate change mitigation so that the Paris Agreement goals are met. Consequently, this sector is currently experiencing a substantial restructuring, which encompasses divestment strategies. We argue that both learning and commitment are important variables in understanding this phenomenon. Hence, we draw on the Uppsala model to propose three sets of hypotheses based on cultural, political, and economic distances, the liability of outsidership, and commitment to understanding how impediments to learning and resource commitment affect divestment events. We tested them by using Cox proportional hazard models with longitudinal data. Our sample consisted of Oil&Gas licenses from Brazil from 1999 to 2020. Our main findings point out that economic distance is the most important determinant for divestments. Cultural distance only influences unintended divestments, while political distance is not significant. We also found that insidership matters, as it is negatively associated with unintended divestments, while it is positively related to intended divestments. Lastly, we found that commitment reductions increase the likelihood of full divestments. While traditionally Uppsala model has been applied to explain the evolution of international investments, our study showcases its functionality to provide a nuanced explanation of MNE divestment decisions considering intended and unintended divestment modes.