Location of Decision-Rights Within Multinational Firms

Abstract

Using U.S.-based multinational firm data gathered over more than two decades, we examine factors associated with the location of decision-rights within these firms, whether the inappropriate assignment of decision-rights is associated with poor firm performance, and whether these firms relocate decision-rights in response to their evolving environments. We find that a mismatch between the location of decision-rights and a firm’s environment is associated with weak firm performance. We also show that the likelihood a parent company will alter the assignment of decision-rights to a subsidiary is increasing in the extent of a mismatch although this likelihood is decreasing in the strength of the subsidiary’s performance.

Keywords: organizational structure, multinational, delegation, decentralization, decision-rights

JEL Classification: C72, M41