Entrepreneurial behaviour in the MNC: an extended agency theory analysis of the parent-subsidiary relationship and subsidiary initiative

Abstract

Entrepreneurial activity in the form of strategic subsidiary initiatives is examined theoretically, utilising an extended agency theory perspective and extant empirical findings. The analysis using traditional agency theory suggests that entrepreneurial subsidiary initiatives are unlikely given the risk necessary to put forth an initiative and lack of incentives on the part of traditional subsidiary management. In developing an extended principal-agent analysis, it is discovered that the risk attitudes of both the parent company and the subsidiary as well as the internal contracting system of the multinational company are rudimentary to a theoretical understanding of subsidiary-driven initiatives. The implications of the analysis are delineated and several propositions developed.