Goal Conflicts in the Headquarters-Subsidiary Relationship: Corporate Control Effects and Implications

Although agency theory is a prominent perspective to investigate behavioral and outcome control in relationships between headquarters and subsidiaries with conflicting goals, the role of social control has largely been overlooked. Yet socialization can be a potent driver for reducing goal conflicts and hence agency problems. In this study, we theoretically advance and empirically test this basic hypothesis and the underlying mechanisms of socialization in their effect on goal conflicts, and subsequently other corporate controls. To do so, we look into bilateral relationships between central functions and their local counterparts, and distinguish between conflicts pushed by central vs. pushed by local units. Examining 131 agency relationships inside a headquarters and its six subsidiaries of a European MNC, we find the distinction of goal conflicts to matter for the use of corporate control strategies.