Temporal Distance and Subsidiary Control

This paper examines how home-host country temporal distance (TD), the extent to which the working hours overlap between the parent firm and its subsidiaries, affects multinational corporations’ (MNCs’) subsidiary control through ownership and expatriates. Drawing on transaction cost economics, we hypothesize a U-shaped relationship between TD and MNC subsidiary ownership level, and an inverse U-shaped relationship between TD and expatriate usage. Using a sample of 9,692 Japanese overseas subsidiaries in 57 host countries, results supported both hypotheses. We discuss the importance of considering both internal and external transaction costs in making subsidiary control decisions in order for MNCs to minimize the total transaction costs of the chosen governance mechanisms. We further note the need for the simultaneous determination of various control mechanisms by minimizing the aggregate total transaction costs associated with them.