Unravelling Agency Relations inside the MNC: The Roles of Socialization, Goal Conflicts and Second Principals in Headquarters-Subsidiary Relationships

In this paper, we propose and test an agency model for HQ-subsidiary relations. Drawing on classical agency assumptions, we develop a baseline hypothesis that links informal controls (i.e., socialization), HQ-subsidiary goal conflicts, and the HQ’s use of formal controls (i.e., behavioral controls). We subsequently introduce an important boundary condition, which reflects subsidiaries’ internal agency relations with subsidiary CEOs as second principals. More specifically, we argue that the baseline relationship only holds under low levels of second principal power. To test our model, we employed a unique study design with three parallel surveys addressing the
agents and the two principals involved in 131 agency relations within one MNC.