Local Linkage and Their Effects on Headquarters` Use of Process Controls

Abstract

This paper explores the relationship between subsidiaries` local linkages and headquarters` use of process controls. Making use of both agency and network theories, we conceptualize subsidiaries as agents within multinational networks, as well as instruments seeking resources from external networks. In accordance with agency theory, we predict that subsidiaries` use of local linkages will result in a decrease in the use of process controls by headquarters. Empirical results from 407 Taiwanese firms confirm this hypothesis, suggesting that headquarters employing process controls to monitor subsidiaries` linkages with local actors (i.e., local firms) is too costly. Headquarters` use of process controls decreases when a subsidiary is a joint venture, and as the firm accumulates experience in a host market.