Skip to main content
SpringerLink
Log in

Utilizing the broader agency perspective for studying headquarters–subsidiary relations in multinational companies

  • Perspective
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

The nature of global business today increases the complexity of multinational companies and highlights the challenges of managing headquarters–subsidiary (HQ–Sub) relationships. We identify key unresolved issues in HQ–Sub relations including closing the gap between headquarters’ expectations and subsidiary performance, managing the nested hierarchical relationships across multiple organizational layers, and aligning these relationships across diverse subunits embedded in different social contexts. We propose that agency theory, particularly its more recent progressions, can advance our understanding of these issues and we offer a perspective to guide such research. We discuss several research implications of the static bilateral, static multilateral, dynamic, and social and contextual streams of agency theory.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1

Similar content being viewed by others

Notes

  1. We use the term headquarters in a more encompassing way including, for example, divisional and regional headquarters. We also use interchangeably the terms “headquarters” and “parent, and “subsidiary” and “subunit”.

References

  • Aghion, P., & Tirole, J. 1997. Formal and real authority in organizations. Journal of Political Economy, 105 (1): 1–29.

    Article  Google Scholar 

  • Aguilera, R. V., & Jackson, G. 2003. The cross-national diversity of corporate governance: Dimensions and determinants. Academy of Management Review, 28 (3): 447–465.

    Google Scholar 

  • Akerlof, G. A. 1970. The market for “lemons”: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84 (3): 488–500.

    Article  Google Scholar 

  • Alchian, A. A., & Demsetz, H. 1972. Production, information costs, and economic organization. The American Economic Review, 62 (5): 777–795.

    Google Scholar 

  • Ambos, B., Asakawa, K., & Ambos, T. C. 2011. A dynamic perspective on subsidiary autonomy. Global Strategy Journal, 1 (3–4): 301–316.

    Article  Google Scholar 

  • Arrow, K. J. 1985. The economics of agency. In J. W. Pratt, & R. J. Zeckhauser (Eds), Principals and agents: The structure of business. Boston, MA: Harvard Business School Press.

    Google Scholar 

  • Arrow, K. J. 1994. Methodological individualism and social knowledge. American Economic Review, 84 (2): 1–9.

    Google Scholar 

  • Arthurs, J. D., Hoskisson, R. E., Busenitz, L. W., & Johnson, R. A. 2008. Managerial agents watching other agents: Multiple agency conflicts regarding underpricing in IPO firms. Academy of Management Journal, 51 (2): 277–294.

    Article  Google Scholar 

  • Bartlett, C. A., & Ghoshal, S. 1989. Managing across borders: The transnational solution. Boston, MA: Harvard Business School Press.

    Google Scholar 

  • Birkinshaw, J., & Morrison, A. J. 1995. Configurations of strategy and structure in subsidiaries of multinational corporations. Journal of International Business Studies, 26 (4): 729–753.

    Article  Google Scholar 

  • Birkinshaw, J., & Pedersen, T. 2009. Strategy and management in MNE subsidiaries. In A. Rugman (Ed), Oxford handbook of international business, 2nd edn. Oxford: Oxford University Press.

    Google Scholar 

  • Bolton, P., & Dewatripont, M. 2005. Contract theory. Cambridge, MA: MIT Press.

    Google Scholar 

  • Brewer, P., & Venaik, S. 2011. Individualism–collectivism in Hofstede and GLOBE. Journal of International Business Studies, 42 (3): 436–445.

    Article  Google Scholar 

  • Cantwell, J., & Brannen, M. Y. 2011. Positioning JIBS as an interdisciplinary journal. Journal of International Business Studies, 42 (1): 1–9.

    Article  Google Scholar 

  • Chandler, A. D. 1962. Strategy and structure. Cambridge, MA: MIT Press.

    Google Scholar 

  • Cheng, J. L. C., Henisz, W. J., Roth, K., & Swaminathan, A. 2009. From the editors: Advancing interdisciplinary research in the field of international business: Prospects, issues and challenges. Journal of International Business Studies, 40 (7): 1070–1074.

    Article  Google Scholar 

  • Coase, R. H. 1937. The nature of the firm. Economica, 4 (16): 386–405.

    Article  Google Scholar 

  • Cuevas-Rodríguez, G., Gomez-Mejia, L. R., & Wiseman, R. M. 2012. Has agency theory run its course?: Making the theory more flexible to inform the management of reward systems. Corporate Governance: An International Review, 20 (6): 526–546.

    Article  Google Scholar 

  • Deutsch, Y., Keil, T., & Laamanen, T. 2011. A dual agency view of board compensation: The joint effects of outside director and CEO stock options on firm risk. Strategic Management Journal, 32 (2): 212–227.

    Article  Google Scholar 

  • Doz, Y. L., & Prahalad, C. K. 1991. Managing DMNCs: A search for a new paradigm. Strategic Management Journal, 12 (S1): 145–164.

    Article  Google Scholar 

  • Doz, Y. L., Santos, J., & Williamson, P. 2001. From global to metanational: How companies win in the knowledge economy. Boston, MA: Harvard Business School Press.

    Google Scholar 

  • Eisenhardt, K. M. 1989. Agency theory: An assessment and review. Academy of Management Review, 14 (1): 57–74.

    Google Scholar 

  • Fama, E. F., & Jensen, M. C. 1983. Separation of ownership and control. Journal of Law & Economics, 26 (2): 301–326.

    Article  Google Scholar 

  • Fidrmuc, J. P., & Jacob, M. 2010. Culture, agency costs, and dividends. Journal of Comparative Economics, 38 (3): 321–339.

    Article  Google Scholar 

  • Filatotchev, I., & Wright, M. 2011. Agency perspectives on corporate governance of multinational enterprises. Journal of Management Studies, 48 (2): 471–486.

    Google Scholar 

  • Foss, K., Foss, N. J., & Nell, P. C. 2012. MNC organizational form and subsidiary motivation problems: Controlling intervention hazards in the network MNC. Journal of International Management, 18 (3): 247–259.

    Article  Google Scholar 

  • Galbraith, J. R. 1973. Designing complex organizations. Reading, MA: Addison-Wesley.

    Google Scholar 

  • Gates, S. R., & Egelhoff, W. G. 1986. Centralization in headquarters–subsidiary relationships. Journal of International Business Studies, 17 (2): 71–92.

    Article  Google Scholar 

  • Ghemawat, P. 2001. Distance still matters. The hard reality of global expansion. Harvard Business Review, 79 (8): 137–147.

    Google Scholar 

  • Ghoshal, S., & Bartlett, C. A. 1990. The multinational corporation as an interorganizational network. Academy of Management Review, 15 (4): 603–625.

    Google Scholar 

  • Ghoshal, S., & Moran, P. 1996. Bad for practice: A critique of the transaction cost theory. Academy of Management Review, 21 (1): 13–47.

    Google Scholar 

  • Hart, O., & Moore, J. 1998. Default and renegotiation: A dynamic model of debt. Quarterly Journal of Economics, 113 (1): 1–41.

    Article  Google Scholar 

  • Hart, O. D., & Tirole, J. 1988. Contract renegotiation and Coasian dynamics. Review of Economic Studies, 55 (184): 509–540.

    Article  Google Scholar 

  • Hedlund, G. 1986. The hypermodern MNC – A heterarchy? Human Resource Management, 25 (1): 9–35.

    Article  Google Scholar 

  • Hendry, J. 2002. The principal’s other problems: Honest incompetence and the specification of objectives. Academy of Management Review, 27 (1): 98–113.

    Google Scholar 

  • Holmström, B. 1979. Moral hazard and observability. The Bell Journal of Economics, 10 (1): 74–91.

    Article  Google Scholar 

  • Holmström, B. 1982. Moral hazard in teams. The Bell Journal of Economics, 13 (2): 324–340.

    Article  Google Scholar 

  • Holmström, B., & Milgrom, P. 1987. Aggregation and linearity in the provision of intertemporal incentives. Econometrica, 55 (2): 303–328.

    Article  Google Scholar 

  • Holmström, B., & Milgrom, P. 1990. Regulating trade among agents. Journal of Institutional and Theoretical Economics, 146 (1): 85–105.

    Google Scholar 

  • Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W. 2002. Conflicting voices: The effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies. Academy of Management Journal, 45 (4): 697–716.

    Article  Google Scholar 

  • Immelt, J. R., Govindarajan, V., & Trimble, C. 2009. How GE is disrupting itself. Harvard Business Review, 87 (10): 56–65.

    Google Scholar 

  • Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4): 305–360.

    Article  Google Scholar 

  • Jensen, M. C., & Meckling, W. H. 1992. Specific and general knowledge and organizational structure. Journal of Applied Corporate Finance, 8 (2): 4–18.

    Article  Google Scholar 

  • Khanna, T., & Palepu, K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75 (4): 41–51.

    Google Scholar 

  • Kostova, T., & Roth, K. 2002. Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. The Academy of Management Journal, 45 (1): 215–233.

    Article  Google Scholar 

  • Kostova, T., & Zaheer, S. 1999. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24 (1): 64–81.

    Google Scholar 

  • Kostova, T., Roth, K., & Dacin, M. T. 2008. Institutional theory in the study of multinational corporations: A critique and new directions. Academy of Management Review, 33 (4): 994–1006.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. 2000. Investor protection and corporate governance. Journal of Financial Economics, 58 (1–2): 3–27.

    Article  Google Scholar 

  • Lazear, E. P., & Rosen, S. 1981. Rank-order tournaments as optimum labor contracts. Journal of Political Economy, 89 (5): 841–864.

    Article  Google Scholar 

  • Lubatkin, M., Lane, P. J., Collin, S., & Very, P. 2007. An embeddedness framing of governance and opportunism: Towards a cross-nationally accommodating theory of agency. Journal of Organizational Behavior, 28 (1): 43–58.

    Article  Google Scholar 

  • Meyer, K. E., Mudambi, R., & Narula, R. 2011. Multinational enterprises and local contexts: The opportunities and challenges of multiple embeddedness. Journal of Management Studies, 48 (2): 235–252.

    Google Scholar 

  • Milgrom, P. R., & Weber, R. J. 1982. A theory of auctions and competitive bidding. Econometrica, 50 (5): 1089–1122.

    Article  Google Scholar 

  • Monteiro, L. F., Arvidsson, N., & Birkinshaw, J. 2008. Knowledge flows within multinational corporations: Explaining subsidiary isolation and its performance implications. Organization Science, 19 (1): 90–107.

    Article  Google Scholar 

  • Mudambi, R., & Navarra, P. 2004. Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs. Journal of International Business Studies, 35 (5): 385–406.

    Article  Google Scholar 

  • Nell, P. C., Ambos, B., & Schlegelmilch, B. B. 2011. The benefits of hierarchy? Exploring the effects of regional headquarters in multinational corporations. In C. G. Asmussen, T. Pedersen, T. Devinney, & L. Tihanyi (Eds), Advances in international management. Vol 24. Bingley: Emerald.

    Google Scholar 

  • Nilakant, V., & Rao, H. 1994. Agency theory and uncertainty in organizations: An evaluation. Organization Studies, 15 (5): 649–672.

    Article  Google Scholar 

  • Nohria, N., & Ghoshal, S. 1994. Differentiated fit and shared values: Alternatives for managing headquarters–subsidiary relations. Strategic Management Journal, 15 (6): 491–502.

    Article  Google Scholar 

  • O’Donnell, S. 2000. Managing foreign subsidiaries: Agents of headquarters, or an interdependent network? Strategic Management Journal, 21 (5): 525–548.

    Article  Google Scholar 

  • Perrow, C. 1986. Complex organizations: A critical essay. New York: Random House.

    Google Scholar 

  • Roth, K., & Nigh, D. 1992. The effectiveness of headquarters–subsidiary relationships: The role of coordination, control, and conflict. Journal of Business Research, 25 (4): 277–301.

    Article  Google Scholar 

  • Roth, K., & O’Donnell, S. 1996. Foreign subsidiary compensation strategy: An agency theory perspective. Academy of Management Journal, 39 (3): 678–703.

    Article  Google Scholar 

  • Salter, S. B., & Sharp, D. J. 2001. Agency effects and escalation of commitment: Do small national culture differences matter? International Journal of Accounting, 36 (1): 33–45.

    Article  Google Scholar 

  • Shapiro, S. P. 2005. Agency theory. Annual Review of Sociology, 31 (1): 263–284.

    Article  Google Scholar 

  • Spence, M., & Zeckhauser, R. 1971. Insurance, information, and individual action. The American Economic Review, 61 (2): 380–387.

    Google Scholar 

  • Stopford, J. M., & Wells, L. T. J. 1972. Managing the multinational enterprise. New York: Basic Books.

    Google Scholar 

  • Strange, R., Filatotchev, I., Buck, T., & Wright, M. 2009. Corporate governance and international business. Management International Review, 49 (4): 395–407.

    Article  Google Scholar 

  • Tirole, J. 1986. Hierarchies and bureaucracies: On the role of collusion in organizations. Journal of Law, Economics, and Organization, 2 (2): 181–214.

    Google Scholar 

  • Westney, D. E., & Zaheer, S. 2001. The multinational enterprise as an organization. In A. Rugman, & T. Brewer (Eds), The Oxford handbook of international business. Oxford: Oxford University Press.

    Google Scholar 

  • White, H. C. 1985. Agency as control. In J. W. Pratt, & R. J. Zeckhauser (Eds), Principals and agents: The structure of business. Boston, MA: Harvard Business Press.

    Google Scholar 

  • Williamson, O. E. 1967. Hierarchical control and optimum firm size. Journal of Political Economy, 75 (2): 123–138.

    Article  Google Scholar 

  • Williamson, O. E. 1975. Markets and hierarchies analysis and antitrust implications: A study in the economics of internal organization. New York: Free Press.

    Google Scholar 

  • Wiseman, R. M., Cuevas-Rodríguez, G., & Gomez-Mejia, L. R. 2012. Towards a social theory of agency. Journal of Management Studies, 49 (1): 202–222.

    Article  Google Scholar 

  • Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. 2008. Corporate governance in emerging economies: A review of the principal–principal perspective. Journal of Management Studies, 45 (1): 196–220.

    Article  Google Scholar 

  • Yu, T., Subramaniam, M., & Cannella, A. 2009. Rivalry deterrence in international markets: Contingencies governing the mutual forbearance hypothesis. Academy of Management Journal, 52 (1): 127–147.

    Article  Google Scholar 

Download references

Acknowledgements

The authors thank CIBER and International Business Department, Moore School of Business, University of South Carolina; Marietta Blau Grant OeAD GmBH, Federal Ministry of Science and Research (BMWF), Austria; Editor David Reeb; and the anonymous reviewers.

Author information

Authors and Affiliations

  1. Institute for International Business, WU Vienna University of Economics and Business, Vienna, Austria

    Anne Kristin Hoenen

  2. Sonoco International Business Department, Moore School of Business, University of South Carolina, Columbia, USA

    Tatiana Kostova

Authors
  1. Anne Kristin Hoenen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Tatiana Kostova
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tatiana Kostova.

Additional information

Accepted by David Reeb, Area Editor, 25 April 2014. This article has been with the authors for two revisions.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Hoenen, A., Kostova, T. Utilizing the broader agency perspective for studying headquarters–subsidiary relations in multinational companies. J Int Bus Stud 46, 104–113 (2015). https://doi.org/10.1057/jibs.2014.31

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2014.31

Keywords

Search

Navigation