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

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  • Kim, Bongjin
  • Prescott, John E.
  • Kim, Sung Min

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.

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  • Kim, Bongjin & Prescott, John E. & Kim, Sung Min, 2005. "Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective," Journal of International Management, Elsevier, vol. 11(1), pages 43-66, March.
    • Handle: RePEc:eee:intman:v:11:y:2005:i:1:p:43-66
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    Cited by:

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    3. Ambos, Björn & Kunisch, Sven & Leicht-Deobald, Ulrich & Schulte Steinberg, Adrian, 2019. "Unravelling agency relations inside the MNC: The roles of socialization, goal conflicts and second principals in headquarters-subsidiary relationships," Journal of World Business, Elsevier, vol. 54(2), pages 67-81.
    4. Yi, Jingtao & Teng, Da & Meng, Shuang, 2018. "Foreign ownership and bribery: Agency and institutional perspectives," International Business Review, Elsevier, vol. 27(1), pages 34-45.
    5. Aguilera, Ruth V. & Crespí-Cladera, Rafel & Infantes, Paula M. & Pascual-Fuster, Bartolomé, 2020. "Business groups and internationalization: Effective identification and future agenda," Journal of World Business, Elsevier, vol. 55(4).
    6. Muellner, Jakob & Klopf, Patricia & Nell, Phillip C., 2017. "Trojan Horses or Local Allies: Host-country National Managers in Developing Market Subsidiaries," Journal of International Management, Elsevier, vol. 23(3), pages 306-325.
    7. Duanmu, Jing-Lin & Lawton, Thomas, 2021. "Foreign buyout of international equity joint ventures in China: When does performance improve?," Journal of World Business, Elsevier, vol. 56(5).
    8. Cynthia Clark & Jill Brown, 2015. "Multinational Corporations and Governance Effectiveness: Toward a More Integrative Board," Journal of Business Ethics, Springer, vol. 132(3), pages 565-577, December.
    9. Ruth V. Aguilera & Valentina Marano & Ilir Haxhi, 2019. "International corporate governance: A review and opportunities for future research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 457-498, June.
    10. Liu, Yang, 2019. "The Processes of New Product Development Recentralization towards a Transnational Emphasis in Multinational Corporations," Journal of International Management, Elsevier, vol. 25(1), pages 19-36.
    11. Gorgijevski, Alexander N. & Andrews, Daniel S., 2022. "Getting the seal of approval: Pathways to subsidiary initiative acceptance," Journal of International Management, Elsevier, vol. 28(2).
    12. Riaz, Zahid & Ray, Sangeeta & Ray, Pradeep Kanta & Kumar, Vikas, 2015. "Disclosure practices of foreign and domestic firms in Australia," Journal of World Business, Elsevier, vol. 50(4), pages 781-792.
    13. Scott, Pamela & Gibbons, Patrick & Coughlan, Joseph, 2010. "Developing subsidiary contribution to the MNC--Subsidiary entrepreneurship and strategy creativity," Journal of International Management, Elsevier, vol. 16(4), pages 328-339, December.
    14. Du, Yan & Deloof, Marc & Jorissen, Ann, 2015. "The Roles of Subsidiary Boards in Multinational Enterprises," Journal of International Management, Elsevier, vol. 21(3), pages 169-181.
    15. Hang Le & Chris Brewster & Mehmet Demirbag & Geoffrey Wood, 2013. "Management Compensation Systems in MNCs and Domestic Firms," Management International Review, Springer, vol. 53(5), pages 741-762, October.
    16. Dolgopyatova, Tatiana & Libman, Alexander & Yakovlev, Andrei, 2018. "Unintended Benefits of Empowering Boards in Conglomerates: A Case Study of AFK Sistema," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 23(2), pages 177-202.
    17. Tahir, Muhammad & Ibrahim, Haslindar & Zulkafli, Abdul Hadi & Mushtaq, Muhammad, 2020. "Corruption, national culture, law and dividend repatriation policy," Journal of Multinational Financial Management, Elsevier, vol. 57.

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