Understanding Agency Problems in Headquarters-Subsidiary Relationships in Multinational Corporations: A Contextualized Model

Tatiana Kostova, Phillip Christopher Nell, Anne Kristin Hoenen

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    Abstract

    This paper proposes an agency model for headquarters-subsidiary relationships in multinational organizations with headquarters as the principal and the subsidiary as the agent. As a departure from classical agency theory, our model is developed for the unit level of analysis and considers two root causes of the agency problem—self-interest and bounded rationality. We argue that in the organizational setting, one cannot assume absolute self-interest and perfect rationality of agents (subsidiaries) but should allow them to vary. We explain subsidiary-level variation through a set of internal organizational and external social conditions in which the headquarters-subsidiary agency dyad is embedded. We then discuss several agency scenarios reflecting various levels of self-interest and rationality that lead to different manifestations of the agency problem. The proposed framework can inform more relevant applications of the agency perspective in organizational studies and motivate future research.
    Original languageEnglish
    JournalJournal of Management
    Volume44
    Issue number7
    Pages (from-to)2611-2637
    Number of pages27
    ISSN0149-2063
    DOIs
    Publication statusPublished - Sep 2018

    Bibliographical note

    Published online: 2. May 2016

    Keywords

    • Agency theory
    • Headquarters-subsidiary relationships
    • Bounded rationality
    • Self-interest
    • Opportunism
    • Culture
    • Institutions
    • Multidomestic
    • Global transnational MNCs

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