Governing headquarters-subsidiaries relationship: An agency perspective

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Abstract

How multinational enterprises (MNEs) coordinate and control their geographically dispersed subunits is central to international management research (Kostova, Nell, & Hoenen, 2018). Our study adopts agency rationales to evaluate the effects of headquarters (HQs)–subsidiary convergence on the performance levels of the latter. Convergence within organizations relies to a large amount on controls that predicate a specific extent of alignment. In theory, the concept of alignment is seen as a valid proxy of agency intensity (Eisenhardt, 1989). Drawing on the supposition that MNEs are differentiated networks, where some subsidiaries continue to function the traditional competence-exploiting role while others are competence-creating and augment the advantages of their home-base (Björkman, Barner-Rasmussen, & Li, 2004), alignment challenges can be manifested in six dimensions that define their strategic posture, span the organizational context and underly competitive imperatives: 1) subsidiary strategy, 2) culture, 3) governance practices, 4) financial decisions, 5) human resources, and 6) environmental activity. Drawing on a sample of 72 MNE foreign operations and gathering 254 responses from top management team (TMT) members, our results indicate that strategic, cultural, governance, and HR alignment are important determinants of subsidiary performance. However, whereas strategic, cultural, and governance convergence between HQs and subsidiaries are positively related to increased performance levels, an ethnocentric approach towards HR practices seems to trigger welfare losses.

Keywords: Governance of the MNE Network, Agency Theory, Subsidiary Performance, Dimensions of Alignment, Configuration of Operations

Authors’ individual contribution: Conceptualization — D.M. and A.M.; Methodology — D.M. and A.M.; Formal Analysis — Y.K.; Writing — Original Draft — Y.K.; Writing — Review & Editing — D.M. and A.M.; Project Administration — D.M. and A.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M16, Q14

Received: 21.05.2021
Accepted: 02.08.2021
Published online: 04.08.2021

How to cite this paper: Manolopoulos, D., Magoutas, A., & Kapnias, Y. (2021). Governing headquarters-subsidiaries relationship: An agency perspective. Journal of Governance & Regulation, 10(3), 117–127. https://doi.org/10.22495/jgrv10i3art10