Multinational operational flexibility, within-network redundancy, and downside risks and divestment rates of international investments

This study takes the multinational operational flexibility perspective anchored in real options theory to examine how intra-firm connectedness and switchability affect the performance and longevity of international investments. We postulate that more extensive intra-firm trade connectedness, along with multinationality, reduces downside risks and divestment rates. Through an empirical examination of a large sample of Korean multinational corporations, we find that more extensive trade ties within the same MNC network are negatively associated with downside risks. We also find that decreased downside risks decrease divestment rates. Furthermore, we observe that these impacts of intra-firm trade ties are more salient when more in-network manufacturing subsidiaries produce the same product type and operate in negatively correlated countries in terms of labor costs. These findings indicate how the flexible configurations of international investments influence their performance and longevity.