Active Boards of Directors in Foreign Subsidiaries

16 Pages Posted: 7 Mar 2011

See all articles by Yan Du

Yan Du

EDHEC Business School

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Ann Jorissen

University of Antwerp - Department of Accounting & Finance

Abstract

Manuscript Type: Empirical.

Research Question/Issue: This study examines the conditions under which foreign subsidiaries maintain active boards of directors. Active boards are in this study defined as boards that perform tasks beyond fulfilling local legal requirements. We focus on both monitoring and service roles.

Research Findings/Insights: Based on a sample of 83 foreign subsidiaries operating in Belgium with headquarters in 14 different countries, we find that a foreign subsidiary is more likely to maintain an active board if it is a world mandate subsidiary, which has worldwide responsibility for a product line and performs a broad scope of value-added activities. Moreover, a foreign subsidiary is more likely to maintain an active board if it is larger relative to the multinational enterprise (MNE), if it has a higher level of local responsiveness, and if its past performance is poorer. Additionally, the presence of an active board in a foreign subsidiary is related to other control mechanisms deployed in the subsidiary.

Theoretical/Academic Implications: Our results highlight the conditions under which foreign subsidiaries are likely to maintain active boards. Moreover, we provide empirical evidence that agency theory and resource dependence theory are relevant and complementary in the analysis of active boards in foreign subsidiaries.

Practitioner/Policy Implications: This study suggests that an active board may be a control mechanism to govern foreign subsidiaries and an instrument to deal with the external environment. Corporate governance regulators may consider developing governance recommendations that emphasize the importance of subsidiary boards in the oversight of foreign subsidiaries.

Keywords: Corporate Governance, Subsidiary Governance, Board of Directors, Multinational Enterprise

Suggested Citation

Du, Yan and Deloof, Marc and Jorissen, Ann, Active Boards of Directors in Foreign Subsidiaries. Corporate Governance: An International Review, Vol. 19, No. 2, pp. 153-168, 2011, Available at SSRN: https://ssrn.com/abstract=1775593 or http://dx.doi.org/10.1111/j.1467-8683.2010.00844.x

Yan Du

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Marc Deloof

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Ann Jorissen

University of Antwerp - Department of Accounting & Finance ( email )

Prinsstraat 13
Antwerpen, B-2020
Belgium
00 32 3 220 40 92 (Phone)
00 32 3 220 40 64 (Fax)

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