Do MNE parent-foreign subsidiary governance mechanisms really impact foreign subsidiary performance?

This paper investigates whether and how the mechanisms used by the parents of multinational enterprises (MNEs) to govern their foreign subsidiaries impact their foreign subsidiaries’ performance. We draw on agency theory, corporate governance (CG), and MNE parent-foreign subsidiary relationships literatures to develop a framework that describes a set of MNE parent-foreign subsidiary governance mechanisms expected to predict foreign subsidiary performance. To test this framework, we conducted several analyses including subsidiary survival analysis, time-series subsidiary growth rate analysis, and time-series subsidiary logistic profitability analysis on large longitudinal datasets for the years 1990-2013 collected from a variety of sources. The results showed, as we argued and predicted, that Japanese MNE parent-foreign subsidiary governance mechanisms [i.e. parent-subsidiary ownership, expatriates, risk orientation, and the utilization of regional headquarters (RHQ)] impacted foreign subsidiary long-term performance (survival) and in a non-linear diminishing manner, but did not impact foreign subsidiary short-term performance (growth rate and profitability).