Foreign Earnings Management of US Multinational Companies: The Role of Decision Rights

23 Pages Posted: 13 Jun 2018

See all articles by Jing Huang

Jing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: February 2018

Abstract

US multinational corporations (MNCs) need to allocate decision rights between parent companies and subsidiaries to manage global operations. This article examines how the allocation of decision rights affects foreign earnings management of MNCs. I find that the extent of foreign earnings management increases when parents retain centralized decision rights. But internal cross-border frictions, between parents and their foreign subsidiaries, and the external local legal environment in which foreign subsidiaries operate can mitigate foreign earnings management despite parents having centralized decision rights. This study provides evidence on how the decision structures of MNCs affect where earnings are managed.

Keywords: agency theory, multinational corporations and enterprises, international financial reporting, foreign earnings management, headquarters–subsidiary roles and relations

Suggested Citation

Huang, Jing, Foreign Earnings Management of US Multinational Companies: The Role of Decision Rights (February 2018). Journal of International Business Studies, Vol. 49, Issue 5, 2018, Available at SSRN: https://ssrn.com/abstract=3193366 or http://dx.doi.org/10.1057/s41267-017-0143-3

Jing Huang (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

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