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

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...