Drawing on performance feedback theory, this paper explores how organizations with multi-level hierarchies respond to negative performance feedback received at different levels. Specifically, I examine exit strategies for foreign affiliates—either closure or sell-off—and their relationship to negative performance feedback at both the affiliate and MNE levels. Analyzing data from 1,264 affiliates in Korea from 2007–2019, I find that for affiliates with large gaps between actual performance and aspired performance, the likelihood of closure is greater than that of sell-off, whereas the opposite holds when MNEs encounter their own performance shortfalls. Two MNE characteristics in the host country—experience and portfolio size—are found to moderate these relationships, such that for MNEs with more experience or larger portfolios in the host country, sell-off is preferable to closure.
