Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective

Abstract

Abstract How and to what extent should a transnational corporation's governance structures be differentiated to satisfy varying strategic roles played by foreign subsidiaries? Drawing on an agency theory perspective, we examine the effects of agency problems in the headquarters–subsidiary relationships on the design of corporate governance in transnational corporations. We propose that corporate governance of foreign subsidiaries in a transnational corporation should be constructed in response to different levels of agency problems associated with varying strategic roles of foreign subsidiaries. In addition, we postulate that differentiating governance structures for each foreign subsidiary is a key contingency requirement in order to achieve superior MNE performance as a whole.