Management Control in Multinational Companies: A Systematic Literature Review

Rev Manag Sci (2019) 13:875–918

https://doi.org/10.1007/s11846-018-0276-1

REVIEW PAPER

Management control in multinational companies:

a systematic literature review
Martina Sageder1,2 · Birgit Feldbauer‑Durstmüller2
Received: 22 December 2016 / Accepted: 8 January 2018 / Published online: 22 January 2018
© The Author(s) 2018. This article is an open access publication
Abstract Executing management control across borders is crucial for multina-

tional companies (MNCs). Various management control mechanisms serve to align
foreign subsidiaries with corporate goals. Management control at MNCs has been
subject of numerous studies in the past 25 years, thus highlighting the relevance of
the topic. To provide a comprehensive overview of the research field, a systematic
literature review including 79 articles from scientific journals has been conducted
that outlines various control mechanisms and presents underlying theories as well
as development over time. The design of management control and management
accounting depends on internal factors at headquarters and the subsidiary as well
as on external factors like culture or market requirements. The relationship of head-
quarters with subsidiaries and the integration into the host country context repre-
sent another influence on management control. This paper categorizes influencing
factors, discusses interactions and limitations of control mechanisms and suggests
implications for practice and research along with avenues for future research.
Keywords Management control · Management accounting · Multinational

company · MNC · Subsidiary control · Control system
JEL Classification M41 Accounting · F23 Multinational Firms
* Martina Sageder
martina.sageder@fh‑salzburg.ac.at
Birgit Feldbauer‑Durstmüller
birgit.feldbauer‑[email protected]
1
Salzburg University of Applied Sciences, Urstein Süd 1, 5412 Puch, Austria
2
Institute of Management Control and Consulting, Johannes Kepler University, Altenberger
Straße 69, 4040 Linz, Austria
13
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
876 M. Sageder, B. Feldbauer‑Durstmüller
1 Introduction
Companies that establish international subsidiaries need to adapt to economic,

political and other conditions in the respective host countries (Endenich et al. 2011)
and have to overcome geographical and cultural divides to manage their operations
(Dent 1996). Management control (MC) helps to align employee decisions and
actions with corporate objectives (Chow et al. 1999). With increasing internation-
alization, companies face the challenge of transferring MC across national borders
to distant subsidiaries (Harrison and McKinnon 1999). Multinational companies
(MNCs) combine diverse mechanisms like planning, standardized procedures and
training to control their foreign subsidiaries (Harzing and Sorge 2003). Various fac-
tors, either within or outside the company, influence the application and effective-
ness of control mechanisms in MNCs.
MC of MNCs has been a research focus of numerous scholars in the past decades.
Since the 1990s—with the breakdown of the Eastern Bloc and the rise of emerg-
ing countries in Eastern Europe and Asia—the complexity of multinational opera-
tions has increased which is clearly reflected in research (Kostova et al. 2016). In the
last years the body of research has grown considerably; however, so far results are
fragmented and partly contradictory. Extent literature reviews in relevant journals
discuss specific insights such as headquarters-subsidiary relationships (e.g., Kostova
et al. 2016), or analyze in detail the impact of individual factors like culture and its
relevance for the design of management control systems (MCSs) (e.g., Harrison and
McKinnon 1999) or explore specific regions (e.g., Hopper et al. 2009). Another field
of research compares management accounting across regions (e.g., Endenich et al.
2011; Kuttner and Feldbauer-Durstmueller 2016). MNCs operate in various coun-
tries with widely differing characteristics and hence need to consider a broad set of
influencing factors within and outside the company when designing their MCS. An
overview of control mechanisms applied by MNCs and influencing factors, as well
as their effects, has not yet been provided. This systematic literature review presents
a comprehensive overview of control mechanisms in MNCs and discusses interac-
tions between control mechanisms and a broad set of factors that impact MC in a
multinational environment. To this end, 79 articles published over the past 25 years
in a broad range of renowned scientific journals were analyzed. Findings from vari-
ous research fields such as international management, accounting and organizational
science are synthesized and insights from MNCs all over the world are presented.
The study clusters factors that affect MC at multinational companies to create a com-
mon research base. We show the development of research findings over time, discuss
contradictory results and summarize findings against the background of frequently
applied theories. Finally, we outline implications for practitioners and researchers
along with avenues for future research. This article is structured as follows: the sub-
sequent section defines the theoretical framework, followed by an explanation of the
methodology. Section 4 then provides an overview of the article characteristics and
the applied theoretical frameworks. Sections 5 and 6 present the findings on control
mechanisms and factors that influence MC at MNCs. A discussion of implications
and limitations concludes the paper.
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Management control in multinational companies: a systematic… 877
2 Theoretical framework
2.1 Multinational companies
An MNC is characterized by geographically dispersed units whereby headquarters

and subsidiaries are located in different countries. Each unit operates in the specific
context of its host country and interacts with local business networks like suppliers
or buyers within the legal and economic framework of the country, which influences
the characteristics of the MNCs (Ghoshal and Bartlett 1990). MNCs are character-
ized by high complexity, which is also common with diversified and decentralized
domestic companies. In addition to coordinating different business divisions, MNCs
have to overcome geographical and cultural distances and need to adapt to the envi-
ronment of the host country (Merchant and Van der Stede 2017). Foreign markets
are entered either by establishing a wholly-owned subsidiary, acquiring an existing
company or by forming a joint venture with a partner in the local market (Yiu and
Makino 2002). Coordinating with a foreign partner adds complexity to managing
and controlling non-domestic activities and therefore joint ventures represent a spe-
cific organizational context (Ding 1997). Studies on management control in joint
ventures deal predominantly with the relationship between partners and the protec-
tion of their resource contributions, which this literature review does not focus on.
Accordingly, findings that solely reference joint ventures are excluded.
2.2 Management control and management control systems
A broad variety of definitions exists for MC and MCS which are partly inconsistent
(Chenhall 2003; Malmi and Brown 2008; Merchant and Otley 2007) and compli-
cate the interpretation of research findings (Malmi and Brown 2008). Some concepts
cover as wide a spectrum that almost all organizational practices are included in
MCSs (Merchant and Otley 2007). For this literature review MC is defined accord-
ing to Malmi and Brown (2008, p. 290) as “systems, rules, practices, values and
other activities management put in place in order to direct employee behavior”.
MCSs consist of a range of such MCs and are “means of gathering and using infor-
mation to aid and coordinate the planning and control decisions throughout an
organization” (Horngren et al. 2012, p. 775). While strategic control focuses on the
external environment and potentials compared to competitors, MC predominantly
concentrates on internal activities that influence employee behavior according to
predefined targets (Merchant and Van der Stede 2017).
MNCs employ various control mechanisms to coordinate units worldwide in
order to meet global organizational objectives (Harzing and Sorge 2003). Despite
the considerable number of definitions (Chow et al. 1999; Malmi and Brown 2008;
Martinez and Jarillo 1991) a broad consensus exists on the meaning of output con-
trol in terms of achieving goals and results and comprising planning and report-
ing (Harzing 1999; Martinez and Jarillo 1991). Process controls specify desirable
employee behavior and include centralization and standardization, as well as writ-
ten manuals, to ensure that employees adhere to specified processes (Brenner and
13
Ambos 2013). The last category encompasses a broad spectrum of mechanisms such
as socialization, communication and training (Harzing 1999). According to Brenner
and Ambos (2013) these formal and informal mechanisms are labeled social control
and serve to spread corporate culture and values in order to build acceptance for
other control mechanisms. The extent of control indicates the tightness of control
an organization exerts to achieve its objectives, e.g., in terms of frequency, accuracy
and combination of various MCs (Merchant and Van der Stede 2017).
3 Methodology
To investigate the current state of research on MC in MNCs, a systematic litera-

ture review was conducted in line with the guidelines suggested by Tranfield et al.
(2003), who claim to increase the quality and transparency of such reviews by apply-
ing a systematic procedure of searching and selecting relevant literature. In the first
step, the topic and corresponding keywords were defined by browsing key contribu-
tions on the subject. A list of selection criteria (see Table 1), the review protocol, as
well as data extraction forms for the subsequent qualitative analysis, were prepared.
In the next step, seven scientific databases (EBSCO, Sage, Science direct, Scopus,
Springer, Web of Knowledge, and Wiley) were searched for the terms “manage*
account*”, “manage* control*, “control* system” in combination with “multina-
tional” or “international”. The search term “international” was complemented with
“company”, “corporation”, “firm” and “enterprise” to limit the search results to rel-
evant articles. Adding asterisks to the search terms ensured that variations such as
“accounting” or “accountant” figured in the results. Duplicates were removed and
the remaining articles were screened to verify the fit with the predefined criteria in
Table 1. This review includes original contributions that analyze qualitative or quan-
titative empirical data (Senftlechner and Hiebl 2015) and present explicit findings
for MC in MNCs. As the control of different business functions like R&D or mar-
keting requires a particular set of MC (Anthony et al. 2014; Chenhall 2003; Mer-
chant and Van der Stede 2017) and hence represent highly specific research lines,
articles that solely deal with the control of such business functions are excluded.
The search of the specified databases resulted in 1664 articles, of which 1588
were excluded, mainly due to duplicates (352), and lacking empirical findings for
MC (609) or MNCs (199), publication before 1991 (114) or language (16). To
ensure article quality, we relied on renowned international journal rankings and
chose peer-reviewed articles from journals of a predefined standard. Therefore, all
included articles had to be listed in the CABS Academic Journal Guide 2015 ranked
2 or higher or in VHB Jourqual 3 ranked C or higher (Bouncken et al. 2015; Sageder
et al. 2018). This excluded another 298 articles. To minimize the risk of missing out
on core contributions, references that were cited at least five times in the selected 76
articles were screened for their fit with the criteria defined in Table 1, which resulted
in the inclusion of another three articles. Figure 1 illustrates the selection process.
The 79 articles that matched all defined criteria were included in the subsequent
analysis. First, article characteristics like country of origin and research design were
collected. Second, the empirical findings of the included articles were analyzed
13
Table 1 Criteria for inclusion

Characteristics Inclusion criteria Specification
Language English
Time-frame 1991–2015
Quality Included in CABS 2015 (ranking ≥ 2)
or VHB-Jourqual 3 (ranking ≥ C)
Content Empirical research article Qualitative or quantitative data analysis: sur-
vey, archival data, case studies, interviews;
published full papers and research notes
MNC: Exclusion:
Headquarters and subsidiaries located Management accounting education, banks,
in different countries joint ventures, franchise partners, services
for MNCs, comparative management
accounting studies without MNC context
MC: Exclusion:
MCS, budgeting, management external reporting, tax policy, internationali-
accounting, performance measure- zation strategy, financing, capital markets,
ment, control mechanisms, centrali- control of specific business functions only:
zation, control of foreign subsidiaries R&D, supply chain, HR, marketing
Search result in databases: 1.664

EBSCO 263
Sage 23 Exclusion: 1.588
Scopus 792 Duplicates 352 Included articles 79
Springer 177 Quality threshold 298 Search in databases 76
Science direct 109 No fit with inclusion Search in sources 3
Wiley 95 criteria in table 1 938
Web of Knowledge 205
Fig. 1 Selection process
and categorized according to recurring themes within the articles (Bouncken et al.
2015).
4 Article characteristics
The majority of studies (36) investigate MNCs that originate from several different
countries. Half of the studies (39) cover MNCs from Western countries like Europe
and the US. 15 compare East-Asian and Western MNCs and eight examine East
Asian MNCs. In 17 studies the headquarters’ country of origin remain unspecified.
In terms of subsidiaries the most thoroughly investigated regions are Europe (31),
US (12), and China (9). 18 studies explore subsidiaries solely in emerging countries
(including China); seven examine developed as well as emerging countries. Subsidi-
aries in emerging countries have been a research focus since the end of the 1990s
with strong attention paid to East Asian countries (12), as well as occasional studies
covering the Middle East (3), former Eastern Bloc countries (4), and Mexico (3). No
13
contribution with focus on African or South American MNCs or subsidiaries could

be identified.
The 79 articles of this literature review appeared in 45 scientific journals. Most
articles were published in journals with international or management accounting
focus. Management Accounting Research (13 articles), Accounting, Organizations
and Society (5), Journal of International Management (5), International Business
Review (4) and European Accounting Review (4) together published 39% of the
included articles. Some of the selected articles influenced other studies in this field.
The eleven articles that were cited at least five times by other contributions within
our review are presented in Table 2.
O’Donnell (2000) explores a model of foreign subsidiary control based on the
interdependence of subunits. Chow et al. (1999) investigate the effects of national
culture on MC and provide arguments for ten articles within the selection. Martinez
and Jarillo (1991) search connections between strategy and use of control mecha-
nisms. Eight studies rely on quantitative research designs, Busco et al. (2008), and
Quattrone and Hopper (2005) gain insights from case studies. Hassel (1991) com-
bines quantitative data with qualitative interviews. Unsurprisingly, older sources are
cited more frequently, the latest source dates back to 2008.
As shown in Table 3, quantitative as well as qualitative research designs were
used to investigate control in MNCs. 23 case studies, of which twelve examine one
Table 2 Most cited articles within selection

Article Cited Topic
O’Donnell (2000) 13 Foreign subsidiary control and interdependence

Chow et al. (1999) 10 Effects of national culture on MC
Martinez and Jarillo (1991) 10 Strategy and control mechanisms
Hassel (1991) 7 Performance measures in dynamic environments
Andersson and Forsgren (1996) 6 Impact of subsidiary embeddedness on MC
Busco et al. (2008) 6 Role of performance measurement in an MNC
Chang and Taylor (1999) 6 Effects of size, nationality and ownership on MC
Quattrone and Hopper (2005) 6 Implementation of information systems
Chung et al. (2000) 5 Relation between management style and MC
Roth and O’Donnell (1996) 5 Incentives in foreign subsidiaries
Kihn (2007) 5 Performance evaluation of subsidiary managers
Table 3 Research designs Quantitative design Articles Qualitative design Articles
Survey 35 Case study 23

Archival data 2 Interviews 9
Survey + archival 3 Case + interviews 1
Combination of quantitative + qualitative methods: 6 articles
13
single case, investigate control mechanisms and influencing factors in detail and
allow profound insights into internal processes and developments.
The 35 quantitative surveys confirm various variables like headquarters
nationality or cultural distance. Six studies combine quantitative and qualitative
methods. Eight studies are longitudinal and document the development of MC
over time. An overview over the research design of all included articles can be
found in the “Appendix”. Studies that cover the manufacturing sector (40 arti-
cles) dominate the research field. Only two articles investigate service firms; two
more studies compare services with other sectors. No contribution from the retail
industry was available. The remaining 33 contributions explore MC in cross-sec-
tional samples without analyzing industry differences; two do not disclose the
industry.
All 79 papers examine at least one control mechanism; 60 papers explore
the combination of two or more control mechanisms. As shown in Table 4,
between 1991 and 1995 the included studies focused on output controls inves-
tigating predominantly performance measurement systems (PMS) and related
incentives. Since the second half of the 1990s, process and social control have
gained in importance—process control representing 74% and social control 58%
of all included studies between 1996 and 2015. Between 2006 and 2010, one-
third of all articles were published. Since 2011—perhaps triggered by the per-
sisting financial crisis—the focus on output control has increased considerably.
However, also the importance of process (72%) and social controls (61%) has
remained stable.
In the last 25 years, a wide range of influencing factors on MC has been explored.
Most of the included articles (77 out of 79) examine at least one influencing factor,
65 articles include 2 or more factors. The subsidiary’s environment (43), the rela-
tionship between headquarters and subsidiaries (41) and MNC characteristics (40)
are investigated most frequently. During the 1990s headquarters nationality (7) and
cultural distance between headquarters and subsidiaries (6) were the predominantly
researched influencing factors. Since the end of the 1990s, MNC characteristics, in
particular the degree of internationalization (12), strategy (11) and corporate culture
(10) have complemented headquarters nationality as most researched influencing
factors. Moreover, the subsidiary environment, in particular culture (13) and envi-
ronmental uncertainty (13), has increasingly gained research attention. We describe
the development over time of mechanisms and influencing factors, subsequent to the
respective chapters.
Table 4 Development of research focus on control mechanisms (multiple assignment of articles)

Period 1991–1995 1996–2000 2001–2005 2006–2010 2011–2015 Total
Output control 6 13 7 21 17 64
Process control 2 13 8 20 13 56
Social control 1 9 7 15 11 43
Extent of control 3 4 0 6 6 19
Total studies 6 17 12 26 18 79
13
5 Control in MNCs
5.1 Mechanisms of control
5.1.1 Output control
Output control prevails in research on MC at multinationals. PMS (23 studies) and

linked incentives (16), budgeting (16), and reporting (13) are key issues. MNCs
spread PMS worldwide to share strategies and goals and influence decisions of their
subsidiaries (Busco et al. 2008; Dossi and Patelli 2008; Mahlendorf et al. 2012).
Financial figures are widely used to measure performance (e.g., Abdallah and
Alnamri 2015; Coates et al. 1995; Kihn 2008) due to their high acceptance and com-
parability across countries (Dossi and Patelli 2010; Kraus and Lind 2010; Moilanen
2008). These controls are scarcely adapted to country-specific conditions that sub-
sidiaries are subjected to (Borkowski 1999; Kihn 2008). To comply with specific
country requirements, subsidiaries develop performance measures to supplement the
global PMS of the MNCs (Dossi and Patelli 2008; Moilanen 2007; Mongiello and
Harris 2006). Non-financial measures often complement but do not replace finan-
cial figures (Dossi and Patelli 2010; Kihn 2008). The impact of alternative meas-
ures remains still low, when MNCs use Balanced Scorecard (BSC), which contains
non-financial dimensions (Abdallah and Alnamri 2015; Kraus and Lind 2010). Fre-
quently, non-financial measures relate to process and customer indicators (Chung
et al. 2006; Dossi and Patelli 2010). Although non-financial measures are less stand-
ardized and therefore less accepted (Hassel 1991; Seal 2001), they help to compen-
sate low controllability in volatile environments by integrating different performance
perspectives (Dossi and Patelli 2010; Du et al. 2013).
PMS are frequently linked to incentives for aligning management decisions in
subsidiaries with corporate goals (Al–Husan and James 2003; Mahlendorf et al.
2012; Roth and O’Donnell 1996). Incentives can be based on financial perfor-
mance or refer to non-financial measures to extend the focus to long-term objectives
(Coates et al. 1995; Dossi and Patelli 2010) and may integrate regional as well as
corporate performance indicators (Roth and O’Donnell 1996). Monetary incentives
for subsidiary managers are commonly linked to quantifiable measures, whereas
career-related rewards are used to strengthen the identification of managers with the
MNC (O’Donnell 2000). Conflicting findings exist on the effectiveness of incentives
linked to PMS: While Dossi and Patelli (2010) find that incentives do not impact
decisions taken in Italian subsidiaries, Mahlendorf et al. (2012) identify effects of
reward mechanisms on subsidiary decisions in Chinese subsidiaries. On the basis
of an international sample, Roth and O’Donnell (1996) report that subsidiary per-
formance increases when managers’ compensation and incentives consider cultural
distance and the subsidiary’s strategic positioning. Mahlendorf et al. (2012) refer to
conceptual differences to explain these contradictory findings.
Reporting serves as a pillar of MC at foreign subsidiaries as it supports PMS
and goals achievement (Chung et al. 2006; Cooper and Ezzamel 2013) and allows
headquarters to gain insights into local business figures (Finnegan and Ni Longaigh
13
2002; Seal 2001). Reliable and timely reporting from subsidiaries requires detailed
process descriptions (Schaaper et al. 2011; Seal 2001) and some MNCs rely
on expatriates to ensure direct reporting lines (Chang et al. 2009; Jaussaud and
Schaaper 2006; Schaaper et al. 2011). MNCs frequently use integrated systems to
achieve consistency in reporting (Al Chen et al. 1997; Hyvönen et al. 2008; Moil-
anen 2008). Hence, efficient reporting requires a coordinated approach of different
control mechanisms.
Budgeting and budgeting controls are highly relevant for controlling foreign sub-
sidiaries (Hassel and Cunningham 1996; Moilanen 2008; Van der Stede 2003) and
often represent the basis for PMS (Busco et al. 2008; Frow et al. 2005; Moilanen
2008) and incentives (Van der Stede 2003). Budgeting processes draw on commu-
nication and information flows between headquarters and subsidiaries. Such com-
plex budgeting processes raise the question whether a subsidiary’s accountabilities
should be aligned with budget-based performance measures. (Busco et al. 2008;
Frow et al. 2005). Unlike the previously mentioned output controls, budgeting seems
to be strongly affected by the background of the respective country, in particular
regarding the importance of budgeting and the level of detail (e.g., Hoffjan et al.
2012; Keplinger et al. 2012; Moilanen 2007). The participation of subsidiaries in the
budgeting process seems to enhance the commitment of a subsidiary’s management
to budgets (Frucot and Shearon 1991; Hassel and Cunningham 2004).
The research focus on output controls has changed over time. In the 1990s studies
on PMS and incentives concentrated on financial performance indicators (Borkowski
1999; Coates et al. 1992; Hassel 1991). Studies conducted after 2000 focus on the
effects of PMS and incentives on subsidiary decisions (Dossi and Patelli 2010;
Mahlendorf et al. 2012), knowledge transfer (Busco et al. 2008; Chang et al. 2009),
strategy implementation (Busco et al. 2008; Dossi and Patelli 2010; Hoque and Chia
2012) and the relationships between subsidiaries and headquarters (Dossi and Patelli
2008; Masquefa 2008). Similarly to PMS, budgeting has been a research focus over
the whole period. In the beginning, effects of budgeting on financial performance
were a key issue (Al Chen et al. 1997; Frucot and Shearon 1991; Hassel and Cun-
ningham 1996). Later studies cover the controllability of budget-relevant condi-
tions (Busco et al. 2008; Fernandez-Revuelta Perez and Robson 1999; Frow et al.
2005) and the influence of culture (e.g., Hoffjan et al. 2012; Keplinger et al. 2012;
O’Connor et al. 2011). In the 1990s, aspects like headquarters nationality (e.g., Al
Chen et al. 1997; Coates et al. 1992), cultural distance (e.g., Frucot and Shearon
1991; Hassel and Cunningham 1996) or environmental uncertainty (e.g., Borkowski
1999; Hassel 1991) were identified as determining factor. Newer studies confirm
these factors (e.g., Dossi and Patelli 2010; O’Connor et al. 2011) and complement
internal contingencies like strategy (Busco et al. 2008; Cools et al. 2008; Seal 2001)
or degree of internationalization (Dong et al. 2008; Mongiello and Harris 2006;
O’Connor et al. 2011). Findings on output control are based on quantitative as well
as qualitative studies. Cultural effects on budgeting practices, however, are reported
predominantly from qualitative studies.
13
5.1.2 Process control
56 articles examine the relevance of process controls with a focus on centraliza-

tion (30 articles), rules and process standardization (20) and decision rights (19).
A centralized management style strives to intensely monitor operational business
in order to inform decision makers at headquarters (Kranias 2000; Quattrone and
Hopper 2005). Centralized MNCs place high emphasis on the transfer of the corpo-
rate culture to the subsidiaries (Al-Husan and James 2003; Williams and van Triest
2009). Introducing management information systems allows permanent information
flow, which is essential for a centralized coordination of MNCs (Chang et al. 2009;
Hyvönen et al. 2008; Schaaper et al. 2011). These systems allow real-time moni-
toring and coordination worldwide, which either reinforce centralization tendencies
(Finnegan and Ni Longaigh 2002; Hyvönen et al. 2008; Quattrone and Hopper 2005)
or strengthen local responsiveness (Al-Husan and James 2003; Finnegan and Ni
Longaigh 2002; Quattrone and Hopper 2005). The consideration of local specifics
like language or legal requirements is key to launching such systems in foreign sub-
sidiaries successfully (Avison and Malaurent 2007; Sheu et al. 2004). Strategic deci-
sions and capital expenditures are prone to be centralized (e.g., Al-Husan and James
2003; Finnegan and Ni Longaigh 2002; Moilanen 2008). Particularly, global transfer
pricing policies—in some cases triggered by tax compliance requirements—appear
to reduce the autonomy of subsidiaries (Cools et al. 2008; Cools and Slagmulder
2009; Plesner Rossing 2013). As transfer prices influence the performance of sub-
sidiaries, PMS need to be adapted to avoid demotivation and dysfunctional behavior
of managers (Borkowski 1999; Busco et al. 2008; Cools and Slagmulder 2009).
A certain degree of autonomy seems to exist for subsidiaries to react to local mar-
ket requirements (Busco et al. 2008; Epstein and Roy 2007; Mongiello and Harris
2006). Within defined boundaries, local subsidiary managers have decision rights
for the operational business (Al-Husan and James 2003; Finnegan and Ni Lon-
gaigh 2002; Neves and Bugalho 2008). While Taylor (1999), Kranias (2000) and
Al-Husan and James (2003) find that shared values support the transfer of decision
rights to subsidiaries, Williams and van Triest (2009) describe that shared values are
associated with less decentralization. Taylor (1999) and Kranias (2000) investigate
MNCs with Japanese headquarters, Al-Husan and James (2003) report on subsidiar-
ies of French MNCs, all with a case study design. Williams and van Triest (2009)
employed a quantitative survey design that included 50% US-headquartered MNCs,
which tend to be more centralized. Diverging findings could stem from different
research designs, lower emphasis on social control in US MNCs or developments
over time.
Most MNCs rely on written manuals, standardized procedures, and job descrip-
tions, to control employee behavior in foreign subsidiaries (Al-Husan and James
2003; Jaussaud and Schaaper 2006; Moilanen 2008) for coordination and effi-
ciency purposes and to ensure adherence to reporting requirements (Moilanen 2008;
Schaaper et al. 2011). However, the efficiency of process control seems limited when
it hinders flexibility (Cools and Slagmulder 2009; Plesner Rossing 2013; Richards
and Hu 2003).
13
Process controls were given little importance in early studies, but have constantly
been investigated since the late 1990s in qualitative as well as quantitative studies.
Articles on centralization and decision rights were published predominantly between
1999 and 2009. Since 2002 the introduction of management information systems
has been in the focus of interest, contributing eleven articles. This research field has
been explored only with qualitative research designs. Early papers discuss imple-
mentation problems that occur due to diverse cultures, languages or skills (Avison
and Malaurent 2007; Moilanen 2007; Sheu et al. 2004). These issues seem to have
lost their relevance after 2007 and disappeared from research once management
information systems were routinely implemented in MNCs. The introduction of such
systems shows two main effects: On the one hand, it facilitates control of worldwide
activities and reduces information asymmetries between headquarters and subsidiar-
ies through monitoring and standardization. On the other hand, it limits decision
rights of subsidiary managements and strengthens centralization tendencies (e.g.,
Finnegan and Ni Longaigh 2002; Quattrone and Hopper 2005). For process control,
again, headquarters nationality (e.g., Chow et al. 1999; Van der Stede 2003) and
environmental uncertainty (e.g., Gencturk and Aulakh 1995; Mongiello and Harris
2006) have been in the focus of research. Cultural distance (e.g., Crespo et al. 2014;
Richards 2000) and interdependence between business units (e.g., Du et al. 2013;
Martinez and Jarillo 1991) seem equally important for explaining process control.
By the end of the 1990s, the legal and political environment gained increasing atten-
tion in qualitative studies. Contributions discuss the legal and political influences in
emerging countries (Beard and Al-Rai 1999; Moilanen 2007; Taylor 1999); other
studies focus on tax compliance requirements in the US and Europe leading to cor-
porate transfer pricing policies (Cools et al. 2008; Cools and Slagmulder 2009; Ple-
sner Rossing 2013).
5.1.3 Social control
Applying formal and informal social controls is subject of investigation of 43 stud-

ies. 19 studies examine different forms of communication and collaboration. Fur-
ther, the roles of expatriates (19) and training (10) for controlling foreign subsidiar-
ies are explored. Social control mechanisms like training, informal communication
and meetings help to initiate a performance-based culture at a subsidiary (Al-Husan
and James 2003; Hoque and Chia 2012; Moilanen 2007), convey corporate values
(Chung et al. 2000; Gencturk and Aulakh 1995; Harzing 2001) and pave the way
for process and output controls (Brenner and Ambos 2013; Martinez and Jarillo
1991). Networks, which may be reinforced by expatriates, enhance communication
within an organization (Brenner and Ambos 2013; Harzing 2001; Wilkinson et al.
2008). Regular communication ensures employee commitment to reporting proce-
dures (Brenner and Ambos 2013; Moilanen 2007) and facilitates knowledge transfer
between units (Cooper and Ezzamel 2013; Crespo et al. 2014; Lovett et al. 2009;
Seal 2001). Moreover, communication enables the implementation and reinforces
the efficiency of PMS (Hoque and Chia 2012; Moilanen 2007, 2008). Informal
relationships that base on trust complement formal agreements and support change
processes (Frow et al. 2005; Masquefa 2008; Seal 2001). In budgeting processes,
13
communication between subsidiaries and headquarters allows for exchanging infor-

mation about changes in the market with positive effects on performance (Hassel
and Cunningham 1996, 2004).
MNCs employ expatriate managers to reform corporate culture (Al-Husan and
James 2003; Brenner and Ambos 2013; Harzing 2001) in order to transfer knowl-
edge to subsidiaries (Chung et al. 2000; Jaussaud and Schaaper 2006; Moilanen
2008) and to ensure reporting and performance monitoring, as well as compliance
with corporate practices and procedures (Chang et al. 2009; Chung et al. 2006; Har-
zing 2001). Expatriate managers hold also positions on the management board with
extensive control and coordination responsibilities (Du et al. 2015). Hence, expatri-
ates perform output and process control tasks besides social control. Employing a
high number of expatriates as a means of control indicates that headquarters exe-
cute tight subsidiary control (Chung et al. 2000; Neves and Bugalho 2008; Richards
2000). Despite the associated high costs, expatriates are a widespread mechanism
of social control (Chung et al. 2006; Schaaper et al. 2011). Though, only expatri-
ates with appropriate knowledge of the host country culture contribute positively to
MC at foreign subsidiaries (Paik and Sohn 2004). Similarly to expatriates, the board
of subsidiary directors assumes a predominantly coordinating role by transferring
information between headquarters and a subsidiary. Moreover, it participates in the
strategy formulation, monitoring and performance evaluation (Du et al. 2015).
Trainings are organized to convey skills and knowledge and to ensure that control
mechanisms are applied appropriately in a multinational setting (Hoque and Chia
2012; Jaussaud and Schaaper 2006; Moilanen 2007), which often goes hand in hand
with the introduction of a management information system (Moilanen 2007; Sheu
et al. 2004). Particularly, when entering a foreign country, trainings assist managers
in building networks and spreading corporate values and strategies throughout the
MNC (Al-Husan and James 2003; Brenner and Ambos 2013). To some extent, train-
ing substitutes expatriates for cost-efficiency reasons (Schaaper et al. 2011). Overall,
social mechanisms seem to be used in a less targeted way than process or output
control for monitoring foreign subsidiaries (Fee et al. 2011) and variations between
MNCs in the application of these mechanisms are high (Martinez and Jarillo 1991).
These findings are illustrated by Brenner and Ambos (2013), who identify a broad
variety of social control depending on the age of a subsidiary.
During large parts of the 1990s social control mechanisms were little investi-
gated. Since 1999 expatriates and the transfer of shared values have been studied
as means of control. The importance of expatriate managers for controlling for-
eign subsidiaries has decreased over time, which is also reflected in the number
of studies. While between 1999 and 2005 42% of all articles deal with expatriates,
from 2011 to 2015 the share totals 17%. Ten of the 19 studies include subsidiar-
ies in emerging countries like China or Russia (e.g., Jaussaud and Schaaper 2006;
Moilanen 2008; Taylor 1999). Since 2003, ten contributions have explored train-
ing as a control mechanism—often in the context of the implementation of output
and process control—exclusively approaching the topic with qualitative research
designs (e.g., Al-Husan and James 2003; Brenner and Ambos 2013; Sheu et al.
2004). Formal and informal communication has been studied consistently over the
whole period, though often as a side effect of other control mechanisms, such as
13
communication accompanying budgeting processes, PMS or the implementation of

management information systems (e.g., Busco et al. 2008; Hassel and Cunningham
1996; Hyvönen et al. 2008).
5.2 Extent of control
The extent of control influences the ability of MNCs to pursue global strategies
(Chang et al. 2009; Dong et al. 2008). MNCs combine several mechanisms to con-
trol the activities of their units and complement output and process control mecha-
nisms with social controls to meet coordination requirements (Brenner and Ambos
2013; Gencturk and Aulakh 1995; Martinez and Jarillo 1991). A high emphasis on
various control mechanisms is associated with superior performance (Kihn 2010;
Lin 2014), particularly, when pooling process controls with output controls (Kihn
2007, 2010). Complementing output controls with process controls helps to reduce
negative effects of geographical or cultural distance (Chang et al. 2009; Gencturk
and Aulakh 1995; Moilanen 2008). The tightness of control depends on the degree
of internationalization as well as on the necessity of local adaptation (Lin 2014;
Martinez and Jarillo 1991). In general, MC is tighter when the importance of a sub-
sidiary in terms of size or investment is high (Chang and Taylor 1999; Dong et al.
2008; Moilanen 2007; Taylor 1999), subsidiary performance is perceived as unsat-
isfying (Lovett et al. 2009; Richards 2000) or it is threatened by the competition in
the market (Al-Husan and James 2003; O’Connor et al. 2011). In a nutshell, MNCs
apply tighter control when a big deal is at stake.
6 Factors influencing control mechanisms at MNCs
6.1 MNC characteristics
A variety of MNC characteristics representing either demographic features or relat-

ing to strategy and corporate culture influence MC. The 40 studies on these factors
are listed in Table 5.
A high degree of internationalization is related to tight control (Dong et al. 2008;
Kihn 2010) with a strong emphasis on financial and non-financial output controls
(Gencturk and Aulakh 1995; Kihn 2008, 2010). Highly internationalized firms rely
on setting goals and evaluating performance (Fee et al. 2011; Kihn 2008; Mongiello
and Harris 2006). Increasing geographical dispersion prompts the integration of
non-financial controls (Kihn 2008; Mongiello and Harris 2006) and challenges man-
agement information systems not least due to the different locations of experts and
operations across different time zones (Hyvönen et al. 2008; Sheu et al. 2004). In
contrast to Gencturk and Aulakh’s (1995) finding, that process control appears to be
less relevant with increasing internationalization, Yu et al. (2006) suggest that inter-
national experience has a positive effect on process control. Kihn (2010) supports
this by claiming that managers in highly internationalized firms put strong focus on
all controls including process control. This deviance may root in the research design:
13
Table 5 MNC characteristics
Factor No. Sources
Degree of 12 Dong et al. (2008), Epstein and Roy (2007), Fee et al. (2011), Gencturk
internationalization and Aulakh (1995), Hyvönen et al. (2008), Kihn (2008, 2010), Mong‑
iello and Harris (2006), Neves and Bugalho (2008), O’Connor et al.
(2011), Sheu et al. (2004) and Yu et al. (2006)
Strategy 11 Al Chen et al. (1997), Al-Husan and James (2003), Busco et al. (2008),
Carr and Tomkins (1996), Chang et al. (2009), Cools et al. (2008),
Cools and Slagmulder (2009), Cooper and Ezzamel (2013), Hoque and
Chia (2012), Lin (2014) and Seal (2001)
Corporate culture 10 Avison and Malaurent (2007), Chung et al. (2000), Dossi and Patelli
(2010), Fernandez-Revuelta Perez and Robson (1999), Hoque and Chia
(2012), Kihn (2010), Lin (2014), Seal (2001), Sheu et al. (2004) and
Van der Stede (2003)
Organizational 9 Borkowski (1999), Brenner and Ambos (2013), Carr and Tomkins (1996),
complexity (size, Cooper and Ezzamel (2013), Epstein and Roy (2007), Harzing and
diversification) Sorge (2003), Kihn (2008, 2010) and Neves and Bugalho (2008)
Industry 6 Al-Husan and James (2003), Harzing and Sorge (2003), Mongiello and
Harris (2006), Richards (2000), Taylor (1999) and Williams and van
Triest (2009)
Knowledge and skills 5 Giacobbe et al. (2016), Masquefa (2008), Moilanen (2007), Paik and
Sohn (2004) and Seal (2001)
References with quantitative research design in bold
while Gencturk and Aulakh (1995) studied activities of US MNCs in the early
1990s, Kihn (2010) and Yu et al. (2006) published their studies more than 10 years
later. Moreover, Yu et al. (2006) included emerging countries, where establishing
rules and procedures provides the basis for MC. This is supported by the argument
that, at an early internationalization stage, detailed rules and procedures serve to
establish control systems from the home country at subsidiaries (Neves and Bugalho
2008). The strong focus on output controls associated with high internationalization
is reported by quantitative studies throughout the whole period. Findings on non-
financial and process controls originate mainly from the second half of the 2000s.
MC serves to align business goals (Cooper and Ezzamel 2013) and a subsidi-
ary’s investment decisions (Al Chen et al. 1997; Carr and Tomkins 1996) with
global strategy. Management accounting supports the translation of strategy into
specific local performance targets and secures conformity with global rules and pro-
cedures (Chang et al. 2009; Cooper and Ezzamel 2013). Local requirements need to
be aligned with global strategy, otherwise conflicts between local and global goals
with potential negative effects on performance are predetermined (Busco et al. 2008;
Cools and Slagmulder 2009; Lin 2014). A new strategic focus impacts the MCS
of a firm (Al-Husan and James 2003; Cooper and Ezzamel 2013; Hoque and Chia
2012; Seal 2001) and requires adapting the PMS, as well as reforming the corporate
culture through training and communication (Al-Husan and James 2003; Hoque and
Chia 2012). The influence of strategy has predominantly been reported in qualita-
tive papers. In the 1990s the influence of corporate strategy on investment decisions
was investigated (Al Chen et al. 1997; Carr and Tomkins 1996). Mainly since 2008,
13
effects of strategy and strategic changes on PMS and corporate rules often accom-
panied by extensive communication have been in the focus (e.g., Cools et al. 2008;
Cooper and Ezzamel 2013; Hoque and Chia 2012).
The corporate culture of the parent company shapes the design of MC (Van der
Stede 2003). A parent’s corporate management pattern may induce close monitoring
or a decentralized management style, which allows for a certain degree of autonomy
to achieve objectives (Lin 2014). Corporate culture influences an MNC’s emphasis
on performance measures (Chung et al. 2000; Dossi and Patelli 2010; Kihn 2010) or
on strategy implementation to control subsidiaries (Chung et al. 2000; Hoque and
Chia 2012; Seal 2001). Organizational culture encourages or hinders the involve-
ment of management and staff in control processes (Fernandez-Revuelta Perez
and Robson 1999; Seal 2001) and the implementation of management information
systems (Avison and Malaurent 2007; Sheu et al. 2004). Articles investigating the
effects of corporate culture on MC appeared after 1999. Recent quantitative studies
confirm findings for effects on PMS and on centralization tendencies.
Complexity of MNCs is defined by the size of the organization, its product and
geographical diversification (Epstein and Roy 2007). Large MNCs place more
emphasis on financial output controls to evaluate performance than small MNCs,
which also rely on non-financial controls (Borkowski 1999; Kihn 2008, 2010).
Social control is affected by size as well: larger MNCs send more expatriate man-
agers to foreign subsidiaries (Harzing and Sorge 2003). Large and highly diversi-
fied MNCs are more likely to implement global environmental standards and cen-
tral evaluation of environmental performance (Epstein and Roy 2007). Small MNCs
rather base control activities on financial planning and on personal control through
the owners (Neves and Bugalho 2008). High diversification is suggested to relate to
formalized planning processes as a means of communication between headquarters
and divisions (Carr and Tomkins 1996) as documented in case studies. Although
many studies use size as control variable, remarkably little insights exist on effects
of an MNC’s size on MC. It seems safe to say, that large MNCs rely on tight output
control to coordinate their subsidiaries. Findings on small MNCs are scarce and can,
therefore, not be generalized.
Although most studies in this review focus on manufacturing firms or study
mixed samples, some industry-specific manifestations of control can be identified.
The services industry seems to opt for decentralization, as opposed to manufacturing
firms, in order to better react to market-specific requirements (Al-Husan and James
2003; Mongiello and Harris 2006; Williams and van Triest 2009). The automotive
industry is more likely to establish a managing director that originates from the par-
ent country, which indicates tight control; local adaptations are few (Harzing and
Sorge 2003). Manufacturers of consumer goods enjoy a higher degree of autonomy
(Richards 2000; Taylor 1999), are more likely to be run by host country managers
and show more local adaptations (Harzing and Sorge 2003). Industry-specific find-
ings are scarce, but consumer-oriented industries like consumer-goods and services
seem to be controlled less centralized in order to adapt to local markets. In addition,
the protection of knowledge might be less important there.
Cultural and local knowledge as well as managerial and technological skills
are critical resources to establish control of foreign activities. Understanding a
13
subsidiary’s operations is a precondition for setting and monitoring targets (Giaco-

bbe et al. 2016). Similarly, social control as executed by expatriates requires ade-
quate cultural knowledge of the host country (Paik and Sohn 2004). Besides inter-
cultural knowledge, the expertise of management accountants is an important factor
for implementing control systems (Masquefa 2008; Moilanen 2007; Seal 2001).
However, insights on knowledge and skills are scarce for MC in a multinational set-
ting and are mainly derived from case studies.
6.2 Environment in the country of origin
The control mechanisms of an MNC are influenced by the environment at the coun-
try of origin as documented by 27 studies (see details in Table 6). 20 studies exam-
ine the nationality of the headquarters, which, to a certain extent, serves as a proxy
variable for culture. The nationality of an MNC’s headquarters affects the type of
control that is exerted which is confirmed by the findings of both, qualitative as well
as quantitative studies. For output control, country-of-origin effects are relatively
low, as financial measures, in particular profitability, are important for all MNCs
regardless of their national background (Chang and Taylor 1999; Chung et al. 2006;
Coates et al. 1995).
MC in the UK and US contains certain parallels: A particularly strong emphasis
on profit (Coates et al. 1992) and financial short-term measures are used to evaluate
the performance of managers (Borkowski 1999; Coates et al. 1995). The financial
orientation shown in early studies is confirmed by the more recent results of Chung
et al. (2006). Besides culture, the short-term focus could be supported by strong cap-
ital market orientation in Anglo-Saxon countries. Pudelko and Tenzer (2013) found
that US MNCs focus on finance and production to control subsidiaries whereby mar-
keting aspects frequently complement the financial dimension (Coates et al. 1995;
Table 6 Environment in the country of origin

Factor No. Sources
Nationality and culture 20 Al Chen et al. (1997), Al-Husan and James (2003), Borkowski
(1999), Carr and Tomkins (1996), Chang and Taylor (1999),
Chang et al. (2009), Chow et al. (1999), Chung et al. (2006),
Coates et al. (1992, 1995), Dossi and Patelli (2008, 2010), Du
et al. (2013), Harzing and Sorge (2003), Hoffjan et al. (2012),
Jaussaud and Schaaper (2006), O’Connor et al. (2011), Pudelko
and Tenzer (2013), Schaaper et al. (2011) and Williams and van
Triest (2009)
Capital market orientation 4 Carr and Tomkins (1996), Coates et al. (1992), Kraus and Lind (2010)
and Seal (2001)
Information and commu- 3 Finnegan and Ni Longaigh (2002), Hyvönen et al. (2008) and Wil‑
nication technology liams and van Triest (2009)
Legal framework 3 Cools et al. (2008), Cools and Slagmulder (2009) and Plesner Rossing
(2013)
13
Pudelko and Tenzer 2013). While social control of expatriates is of minor relevance
(Chang and Taylor 1999; Pudelko and Tenzer 2013), US MNCs stress process con-
trol by imposing strict rules and procedures (Chow et al. 1999; Sheu et al. 2004). In
addition, US MNCs seem prone to centralization, although they are willing to con-
cede decision rights to their subsidiaries if required (Williams and van Triest 2009).
Of 25 articles on MNCs headquartered in the US, nine explicitly describe national-
ity or national culture as influencing factor. The financial orientation is reflected in a
relatively high number of contributions on PMS and incentives (10, 40% of all stud-
ies). Eight articles (32%) deal with centralization. The emphasis on social control
(8, 32%) is relatively low compared to other regions. Short-term orientation, strong
financial focus and lower relevance of social control as reported in early studies is
also found in current research. Ten studies investigate MNCs originating from UK,
of which five explore the influence of headquarters nationality in comparison to the
US, Germany or Japan, and find that UK MNCs place their emphasis also on short-
term performance and financial metrics (Borkowski 1999; Carr and Tomkins 1996;
Chung et al. 2006; Coates et al. 1992, 1995). Cost reduction is an important target,
although innovation is also a priority (Borkowski 1999).
The focus and relative weight of non-financial measures vary between countries.
German MNCs rather focus on internal business and customer measures than US
and UK companies (Chung et al. 2006). This might indicate the long-term orienta-
tion of the former as suggested by Carr and Tomkins (1996), who found that Ger-
man MNCs stress long-term orientation in investment decisions. German MNCs,
moreover, include marketing aspects (Coates et al. 1995) as well as product and
technological innovation measures when evaluating the performance of their subsid-
iaries (Borkowski 1999). Although still important, the weight attributed to financial
measures is lower than in other regions (Borkowski 1999; Chung et al. 2006). Expa-
triates play a minor role for controlling foreign subsidiaries compared to Japanese
MNCs (Pudelko and Tenzer 2013). Eleven studies investigate MNCs headquartered
in Germany, six with explicit focus on nationality or culture. Basic characteristics of
German MNCs appear stable over time.
Eleven studies deal with Finnish MNCs; none of them with focus on nationality
of headquarters, though. There seems to be considerable interest in the application
of financial and non-financial measures (7 studies) in this region. Control priorities
in MNCs compared to other countries of origin are missing. French MNCs were
subject of seven studies, of which only two explicitly address headquarters national-
ity. French MNCs tend to be centralized and rely on process controls (Schaaper et al.
2011). Al-Husan and James (2003) found diverse manifestations of centralization in
Jordanian subsidiaries of two French MNCs, indicating a strong influence of corpo-
rate culture or other context factors. Budgets seem less important than in German
corporations (Hoffjan et al. 2012). While former case studies indicate, that French
MNCs use expatriates to control their foreign operations (Al-Husan and James 2003;
Avison and Malaurent 2007), Schaaper et al. (2011) found that in recent years, the
employment of expatriate managers has been replaced by training local staff mainly
for cost reasons. Despite the common economic space and geographical proximity,
MC in European MNCs is not homogenous (Harzing and Sorge 2003). So common
insights are rare: European MNCs, tend to focus on innovation measures (Borkowski
13
1999). Centralization tendencies appear to be weaker in European corporations

than in US MNCs (Williams and van Triest 2009) and the use of expatriates seems
common but to a lesser extent than in Japanese MNCs. European companies rather
recruit and train local workforce (Jaussaud and Schaaper 2006; Pudelko and Tenzer
2013). 37 studies cover MNCs headquartered in Europe and investigate centraliza-
tion (13, 35%) as well as PMS and incentives (17, 49%). While the introduction of
management information systems is subject of seven European studies, this issue
seems of minor importance for researchers in the US who contribute two case stud-
ies. Social control is investigated in 20 articles (54%) and appears more relevant in
Europe than in the US. As no current study comparing MNCs in Europe is at hand,
the effects of recent developments like the European Single Market or harmoniza-
tion of legal standards are unclear.
Compared to European headquarters, Taiwanese and Japanese headquarters place
a strong emphasis on standardizing operations and exert intense process control
by establishing rules and monitoring procedures (Chang et al. 2009; Jaussaud and
Schaaper 2006), confirming the results of Chow et al. (1999), who found that Japa-
nese and Taiwanese firms prefer high levels of process control, which, though, is
even surpassed by US MNCs. Similarly to German MNCs, the focus on financial
measures is weaker than in Anglo-Saxon countries (Borkowski 1999; Chung et al.
2006) with higher long term orientation (Borkowski 1999). Japanese MNCs strongly
rely on expatriation for controlling foreign subsidiaries (Chung et al. 2006; Pudelko
and Tenzer 2013; Schaaper et al. 2011). 23 articles investigate East Asian MNCs.
with ten contributions (43%) on centralization tendencies. More than 60% of studies
deal with expatriates which reflects the importance of this research subject in this
region. PMS and incentives seem to be of minor interest (6 studies, 26%).
Although the national culture of the headquarters is frequently suggested to influ-
ence MC (Harzing and Sorge 2003; Pudelko and Tenzer 2013), there are only few
studies that explicitly investigate the influence of the headquarters’ national cul-
ture on control in foreign subsidiaries, mainly based on Hofstede’s (2001) cultural
dimensions. Culture appears to affect performance evaluation, e.g., the value of
fairness in performance evaluation (Borkowski 1999) and the type of control that
is exerted (Chang and Taylor 1999). Dossi and Patelli (2010) found that countries
with low power distance, uncertainty avoidance and a highly individualistic cul-
ture use PMS more interactively and include more non-financial indicators, such as
customer-oriented measures. This finding, however, is inconsistent with findings on
US MNCs which are characterized by low power distance and individualistic cul-
ture but low integration of non-financial figures in PMS (Borkowski 1999; Williams
and van Triest 2009). PMS appear to have more influence on subsidiary decisions
if headquarters are located in a country with high scores on individualism, feminin-
ity, equality, and tolerance for uncertainty (Dossi and Patelli 2008). Cost account-
ing methods exhibit strong future orientation in Japan, where long-term orientation
prevails, compared to short-term oriented MNCs in the US (Al Chen et al. 1997).
Depending on the home country, controls adapt to a varying extent to local charac-
teristics of the host country which may also root in the differences in national cul-
tures of the host and home countries (Chow et al. 1999). Most findings in this sec-
tion derive from quantitative studies, although some date back to the 1990s with
13
lacking confirmation in actual studies, like the importance of fairness in PMS and
adaptation to host country cultures.
MNCs from countries with high capital market orientation, e.g., the US and UK
emphasize short-term financial indicators such as earnings per share to measure
performance (Carr and Tomkins 1996; Coates et al. 1992). Capital market pressure
prompts a focus on shareholder value and on financial indicators, which may conflict
with other (non-financial) goals of the MNC (Kraus and Lind 2010; Seal 2001). Few
studies from the US and Europe investigate the influence of capital market pressure
on MC. Some of these findings date back to the 1990s. The importance of capital
markets in Europe has changed considerably over the past 20 years (Kraus and Lind
2010), so findings might not be consistent over time. Moreover, quantitative evi-
dence is lacking for this factor.
New developments in information and communication technologies enable sub-
sidiaries to access data worldwide and headquarters to monitor operations and per-
formance in real-time (Finnegan and Ni Longaigh 2002; Williams and van Triest
2009). This virtual integration allows for MC centralization, as headquarters can
implement coordination (Finnegan and Ni Longaigh 2002; Hyvönen et al. 2008). In
addition, social control reduces as IT systems can monitor compliance with global
strategies and rules (Williams and van Triest 2009). Only case studies on the intro-
duction of information systems between 2002 and 2009 report effects of new tech-
nologies on MC.
Legal frameworks, and above all accounting and tax regulations, influence cor-
porate control systems. Tax authorities increasingly restrict flexibility of transfer
prices to limit tax-minimizing behavior of MNCs. In the past decade, tax compli-
ance has been reported as dominating criterion for setting transfer pricing within
MNCs thereby undermining business aspects (Cools et al. 2008; Cools and Slag-
mulder 2009; Plesner Rossing 2013). Tax legislation and tax-optimizing policies on
the group level entail far-reaching implications for MC. Above all, PMSs have to
be adapted (Cools et al. 2008; Cools and Slagmulder 2009). Otherwise, restricted
accountability may limit the motivation for innovative behavior at subsidiaries
(Cools et al. 2008) and lead to suboptimal economic decisions (Cools and Slag-
mulder 2009) Standardized transfer prices are proposed to enhance the use of exter-
nal benchmarks, increase internal transparency and promote non-financial perfor-
mance indicators to adjust performance evaluation (Cools et al. 2008). Moreover,
corporate transfer pricing fosters centralization and formalization at the expense of
flexibility (Cools et al. 2008; Cools and Slagmulder 2009; Plesner Rossing 2013).
Tax compliance issues have been researched in case studies since 2008, indicating
considerable impacts on centralization and PMS.
6.3 Relationships of subsidiaries within MNCs
Several factors shape the relationship of subsidiaries with headquarters as well as

other units. For an overview see Table 7.
Cultural and geographical distance between headquarters and subsidiaries com-
plicate communication at MNCs (Beard and Al-Rai 1999; Crespo et al. 2014; Hassel
13
Table 7 Relationship of subsidiaries within MNCs

Factor No. Sources
Cultural and geo- 22 Al-Husan and James (2003), Avison and Malaurent (2007), Beard and
graphical distance Al-Rai (1999), Coates et al. (1995), Crespo et al. (2014), Frucot
and Shearon (1991), Giacobbe et al. (2016), Hassel (1991), Has‑
sel and Cunningham (1996, 2004), Hoffjan et al. (2012), Jaussaud
and Schaaper (2006), Keplinger et al. (2012), Lin (2014), Moilanen
(2007, 2008), Neves and Bugalho (2008), Richards (2000), Roth
and O’Donnell (1996), Schaaper et al. (2011), Sheu et al. (2004) and
Wilkinson et al. (2008)
Interdependence 15 Andersson and Forsgren (1996), Busco et al. (2008), Chung et al.
within MNC (2000), Dong et al. (2008), Dossi and Patelli (2010), Du et al. (2013),
Frow et al. (2005), Gencturk and Aulakh (1995), Harzing (2001),
Harzing and Sorge (2003), Jaussaud and Schaaper (2006), Lin
(2014), Martinez and Jarillo (1991), O’Donnell (2000) and Taylor
(1999)
Social relationships 7 Brenner and Ambos (2013), Dossi and Patelli (2008), Fernandez-Revuelta
Perez and Robson (1999), Hyvönen et al. (2008), Masquefa (2008) and
Moilanen (2007, 2008)
Importance of 3 Chang and Taylor (1999), Dossi and Patelli (2010) and Moilanen (2007)
subsidiary
1991) and affect various mechanisms of MC. Cultural distance leads to a diverging
understanding of control mechanisms which may cause resistance to control sys-
tems (Hoffjan et al. 2012; Keplinger et al. 2012; Moilanen 2007, 2008). In addi-
tion, increased cultural distance is associated with lower performance (Lin 2014).
Lacking familiarity with the local culture limits the ability to exert control over for-
eign activities (Giacobbe et al. 2016; Paik and Sohn 2004) and impedes the imple-
mentation of management information systems (Avison and Malaurent 2007; Sheu
et al. 2004). Low cultural distance enhances trust in a subsidiary’s management,
while high cultural distance intensifies controls (Moilanen 2008; Richards 2000).
To incorporate the respective culture in the evaluation of foreign managers, MNCs
use different incentive schemes for foreign and home operations (Coates et al. 1995;
Roth and O’Donnell 1996) whereby the incentive proportion increases with cultural
distance (Roth and O’Donnell 1996). Geographically dispersed units are predomi-
nantly controlled with financial performance measures—even in dynamic envi-
ronments—as the use of alternative measures would be inefficient for distant sub-
sidiaries (Hassel 1991). In countries with small cultural distance to headquarters,
budgetary control seems effective as common culture motivates subsidiaries to meet
budgets. For more distant units, it takes extensive communication and participation
in the budget process to align these subsidiaries with corporate goals (Hassel and
Cunningham 2004). Training serves as a means to narrow the gap between head-
quarters and foreign units (Al-Husan and James 2003; Moilanen 2007; Schaaper
et al. 2011). Cultural distance is positively related to the delegation of expatriates,
whereby the importance of expatriates is higher for younger subsidiaries and dimin-
ishes over time as the MNC (Moilanen 2008; Wilkinson et al. 2008). In contrast
13
to cultural distance, geographical distance seems to impair only individual control

mechanisms, like real-time communication (Sheu et al. 2004) or the willingness of
managers to go abroad (Schaaper et al. 2011). Insights on the use of financial per-
formance measures and incentives related to cultural distance date back to the 1990s
but lack current findings. The majority of studies (13 out of 21) conducted since
2003 explore the introduction of control systems and social control mechanisms to
overcome cultural distance between business units. Eleven studies investigate cul-
tural distance for subsidiaries in emerging countries in Asia and Eastern Europe
with Western headquarters, another five studies compare Western with East Asian
MNCs and six explore cultural distance within Western countries. While quantita-
tive studies (10) focus on impacts on output control like budgeting and reporting or
the presence of expatriates, qualitative studies (12) explore a wide range of control
mechanisms.
Organizational interdependence within an MNC refers to the dependence of a for-
eign subsidiary’s results on other units within the organization (O’Donnell 2000).
Interdependence increases with size and age of subsidiaries (Harzing and Sorge
2003). Highly integrated MNCs apply tight control mechanisms (Andersson and For-
sgren 1996; Lin 2014), which is related to higher performance (Lin 2014). Process
controls intensify with increasing integration (Chung et al. 2000; Gencturk and Aul-
akh 1995; Martinez and Jarillo 1991). This effect seems to be even stronger in terms
of social control, which includes participation in teams, socialization and informal
communication (Martinez and Jarillo 1991). High interdependence between head-
quarters and subsidiaries is associated with strong relationships between headquar-
ters and subsidiary managers (Chung et al. 2000; O’Donnell 2000) particularly when
knowledge exchange between business units is high (Chung et al. 2000). Moreover
interdependence is linked with non-monetary incentives (O’Donnell 2000; Roth
and O’Donnell 1996) that are either related to the managers’ career prospects or
the subsidiary’s success (O’Donnell 2000). Frow et al. (2005) highlight that inter-
dependencies diminish controllability as managers depend on other units’ perfor-
mances to achieve their budget targets. As a consequence, managers try to master
this challenge by communicating informally and cooperating in teams. High inter-
dependence between units draws attention to transfer prices between subsidiaries.
Transfer prices that subsidiaries perceive as unfair, may fuel conflicts when local
and global goals diverge (Busco et al. 2008). MNCs adapt their PMS to international
interdependence by participating subsidiaries in the design of PMS and including
non-financial indicators to consider effects that are beyond the control of the respec-
tive subsidiary (Dossi and Patelli 2010; Du et al. 2013). In case of subsidiary par-
ticipation, the emphasis on non-financial indicators increases to allow for broader
performance measurement (Dossi and Patelli 2010). The influence of a PMS on sub-
sidiary decisions is higher, if subsidiaries co-designed the PMS and therefore meas-
ures are perceived as adequate (Dossi and Patelli 2008). Chung et al. (2000) find
that the effects on output control seem to depend on the type of interdependence. As
product-related interdependencies increase, marketing and manufacturing measures
gain importance, while financial controls do not change. The contribution of capi-
tal determines the level of subsidiary control (Chung et al. 2000; Dong et al. 2008;
Taylor 1999). Higher capital contribution is related to tighter financial control and
13
control by expatriate managers (Chung et al. 2000; Jaussaud and Schaaper 2006)
and an emphasis on financial and marketing output control (Chung et al. 2000).
Research findings on interdependence are broad, and cover various control mech-
anisms. MNCs with high interdependence appear to apply relatively tight process
control (e.g., Chung et al. 2000; Martinez and Jarillo 1991). Social control mecha-
nisms facilitate coordination between units in those MNCs (e.g., Frow et al. 2005;
Martinez and Jarillo 1991). Interdependence has been studied throughout the whole
observation period with qualitative as well as quantitative methods. Early studies
investigate process and output control on an aggregated level, while later studies,
in particular since 2005 focus on specific mechanisms like budgeting and PMS and
accompanying formal and informal communication. Controllability issues caused by
high interdependencies are reported in two case studies.
Social relationships enable the implementation of control mechanisms; in par-
ticular, the success of a group-wide launch of a new PMS depends on social net-
works that are built on trust (Dossi and Patelli 2008; Masquefa 2008). Networks,
that are in some cases supported by expatriates, facilitate a smooth introduction of
process control mechanisms (Brenner and Ambos 2013) as these ties help to reduce
resistance to new systems and prevent conflicts (Dossi and Patelli 2008; Masquefa
2008). Special importance is attached to the partnering role of management account-
ants for the launch of such systems (Masquefa 2008; Moilanen 2007, 2008). Find-
ings for this factor are based predominantly on qualitative studies in European sub-
sidiaries and are therefore transferable to a limited extent only.
The strategic importance of a subsidiary affects output control, which is tighter
for subsidiaries with higher relevance within the MNC (Chang and Taylor 1999;
Moilanen 2007). For more important subsidiaries, non-financial indicators are
included in PMS (Dossi and Patelli 2010). Insights on MC related to strategic
importance, however, are isolated.
6.4 Subsidiary characteristics
A broad range of subsidiary characteristics, as listed in Table 8, influences MC. 29

articles, that predominantly feature quantitative studies, explore factors like size, age
or performance.
The size of a subsidiary relates positively to output control (Chang and Tay-
lor 1999; Gencturk and Aulakh 1995). Headquarters rather link PMS with reward
mechanisms at large subsidiaries to increase influence on decisions at these units
(Dossi and Patelli 2008; Mahlendorf et al. 2012). For larger subsidiaries, non-finan-
cial indicators—in particular process indicators—are integrated in PMS to capture
different aspects of performance (Dossi and Patelli 2010). Training and other social
controls correlate positively with a subsidiary’s size (Jaussaud and Schaaper 2006),
while the share of expatriates decreases with growing staff numbers (Harzing and
Sorge 2003). Also, growing staff numbers raise the influence of headquarters on
personnel management (Taylor 1999). In larger subsidiaries the board of directors
engage more in coordinating activities to align them with corporate goals (Du et al.
2015). However, Richards (2000) did not find significant effects on overall control.
13
Table 8 Subsidiary characteristics
Factor No. Sources
Size 10 Chang and Taylor (1999), Dossi and Patelli (2008, 2010), Du et al. (2015),
Gencturk and Aulakh (1995), Harzing and Sorge (2003), Jaussaud and
Schaaper (2006), Mahlendorf et al. (2012), Richards (2000) and Taylor
(1999)
Age 9 Brenner and Ambos (2013), Dossi and Patelli (2008), Harzing (2001), Har‑
zing and Sorge (2003), Kranias (2000), Moilanen (2007, 2008), Wilkinson
et al. (2008) and Yu et al. (2006)
Form of estab- 8 Al-Husan and James (2003), Andersson and Forsgren (1996), Aulakh
lishment and Gencturk (2000), Du et al. (2015), Harzing (2001), Jaussaud and
Schaaper (2006), Moilanen (2007) and Yu et al. (2006)
Management 7 Du et al. (2015), Lovett et al. (2009), Lowe et al. (2000), Moilanen (2008),
Mongiello and Harris (2006), Richards (2000) and Roth and O’Donnell
(1996)
Objectives 4 Cools and Slagmulder (2009), Lovett et al. (2009), Taylor (1999) and Wil‑
liams and van Triest (2009)
Business func- 4 Jaussaud and Schaaper (2006), Lin (2014), Pudelko and Tenzer (2013) and
tion Yu et al. (2006)
Performance 3 Dossi and Patelli (2010), Lovett et al. (2009) and Richards (2000)
This might be due to the research design. Other studies focused on specific mecha-
nisms of control, while Richards (2000) investigated the extent of perceived overall
control. Early studies focus on output control and expatriates, since 2008 the impact
on PMS has been explored. No results for process controls have been reported.
The age of a subsidiary influences the control that is exerted by the headquarters.
As the experience of subsidiaries grows, the autonomy of the local management
increases (Kranias 2000; Moilanen 2007; Yu et al. 2006) while process controls
decrease (Yu et al. 2006) and means of control adapt to host country requirements
(Dossi and Patelli 2008; Kranias 2000). Social control mechanisms like trainings or
networks support the introduction of process and output control in early stages by
creating trust and building legitimacy (Brenner and Ambos 2013; Moilanen 2007).
In particular, the presence of expatriates is important for setting-up new subsidiar-
ies in culturally distant regions and reduces with increasing age (Harzing and Sorge
2003; Moilanen 2008; Wilkinson et al. 2008). The role of expatriates seems to
change over time to a more informal control via networks, particularly in relatively
independent subsidiaries (Harzing 2001). At mature subsidiaries, management
information systems ensure standard reporting lines (Brenner and Ambos 2013;
Moilanen 2007). However, the PMS of the headquarters is more likely to compete
with a local PMS that is in line with local needs (Dossi and Patelli 2008). Insights
on the effects of a subsidiary’s age have been reported since the early 2000s with an
emphasis on extent and combination of control mechanisms. As the establishment of
a subsidiary’s control structures and local networks takes time, control mechanisms
are adjusted to the development stage with intense monitoring at the beginning and
looser process and output control to allow mature subsidiaries higher autonomy and
13
localization (e.g., Brenner and Ambos 2013; Yu et al. 2006). Insights from qualita-
tive studies are largely supported by quantitative surveys for emerging as well as
industrialized countries. Qualitative studies report on social control mechanisms as
trailblazers for other control mechanisms.
The form of establishment describes whether the MNC builds its foreign opera-
tions from scratch as a green-field investment, acquires a company, or forms a joint
venture together with a foreign partner. At wholly-owned foreign subsidiaries,
MNCs apply control by staffing key management positions and expatriates, while
training, formal regulations, and knowledge transfer appear common at joint ven-
tures, particularly when the capital share is low (Jaussaud and Schaaper 2006). The
influence of headquarters on subsidiary decisions is higher in case of wholly-owned
subsidiaries than of joint ventures (Yu et al. 2006). In partly-owned subsidiaries,
the board of directors is deeply involved in strategy development to safeguard cor-
porate goals (Du et al. 2015). With green-field operations, reporting structures can
be implemented from scratch according to their respective requirements (Moilanen
2007), whereas with acquisitions a higher effort is needed to integrate the subsidiary
into the MNC (Andersson and Forsgren 1996; Moilanen 2007). In addition, the role
of expatriates building formal and informal communication and networks is impor-
tant to spread corporate values (Al-Husan and James 2003; Harzing 2001). Aul-
akh and Gencturk (2000) found different effects of control mechanisms on wholly-
owned subsidiaries and autonomous external distributors: Output controls induce
negative effects on perceived compliance and performance of external agents. Social
controls, on the other hand, have a positive effect on flexibility and performance of
external partners as well as subsidiaries, although stronger in case of the latter. Pro-
cess controls do not affect the economic performance of both, but lead to perception
of higher compliance. Main findings on the form of establishment have been derived
from a limited pool of quantitative studies since 2000. From an MC perspective,
establishing a wholly-owned foreign subsidiary from scratch seems to facilitate con-
trol, as joint venture partners or an acquisitions’ history add complexity.
Characteristics of a subsidiary’s management like experience or cultural back-
ground influence the level of control that is applied by headquarters. Unsurprisingly,
MNCs concede more autonomy to experienced managers (Du et al. 2015; Moilanen
2008; Mongiello and Harris 2006). CEOs with longer tenure are controlled less by
the subsidiary’s board of directors (Du et al. 2015). Managerial commitment seems
to facilitate the implementation of corporate culture (Lowe et al. 2000). Incentives
of senior managers increase with higher commitment, but corporate performance
gains weight with lower commitment (Roth and O’Donnell 1996). The cultural
background of managers appears to influence MC. Local managers in emerging
countries are rather subject to tighter control than managers of Western countries
(Lovett et al. 2009; Richards 2000), although sending expatriates to foreign coun-
tries seems to even tighten control (Richards 2000). Findings on this factor have
been derived from qualitative as well as from quantitative studies since 2000. A rela-
tionship of autonomy level and the manager’s experience has been reported from
European subsidiaries only.
Besides the overall strategy of the MNC, the objective of a specific subsidiary
affects the extent and focus, as well as the mechanisms of control. Subsidiaries serve
13
different purposes within an MNC which is reflected in MC. MNCs seem to concede
more autonomy to innovative subsidiaries to allow for the use of local resources
(Cools and Slagmulder 2009; Williams and van Triest 2009); however, such subsidi-
aries tend to be subjected to high social control (Lovett et al. 2009). MNCs that aim
to enter new markets accept lower levels of subsidiary control in order to gain access
to new opportunities (Taylor 1999). Findings on this factor are isolated, which
makes it difficult to deduce general statements.
Although control of specific business functions is not the primary focus of this
review, some articles contain such findings. Research activity at the subsidiary is
related negatively to process control given that these activities are complex and
other forms of control might be more suitable (Yu et al. 2006). Manufacturing sub-
sidiaries can enhance performance if tightly controlled, as local responsiveness are
not necessarily required (Lin 2014). Transferring expatriates (Pudelko and Tenzer
2013) and knowledge to subsidiaries complements other control mechanisms in pro-
duction and technology (Jaussaud and Schaaper 2006; Pudelko and Tenzer 2013). In
addition, Pudelko and Tenzer (2013) found that control for finance and accounting
as well as sales, marketing and human resource management is comprehensive. It
seems that functions that are critical to success are controlled more tightly unless
flexibility is required.
The performance of a subsidiary is associated particularly with the extent and
focus of control. Two studies on US MNCs found, that subsidiaries with relatively
poor performance are subject to tighter control (Lovett et al. 2009; Richards 2000)
and closer monitoring by expatriate managers (Richards 2000). While for profitable
subsidiaries non-financial measures like personnel indicators are included in PMS,
for low-performing subsidiaries the control focus lies on financial performance
alone (Dossi and Patelli 2010). There are only occasional findings that suggest per-
formance as influencing factor; however, the relevant quantitative studies provide
consistent results—at least for Western MNCs.
6.5 Environment and local networks of subsidiaries
The environment of subsidiaries shapes the control system of foreign subsidiaries.

43 studies analyze various environmental factors as presented in Table 9.
The national culture and business traditions of the host country affect MC par-
ticularly in terms of budgeting and budget-related incentives (Hoffjan et al. 2012;
Van der Stede 2003). Subsidiaries in countries with high power distance and an
uncertainty-avoiding culture implement comprehensive budgeting processes and
tolerate more interference from headquarters (Van der Stede 2003). Budgeting and
planning are common practices in Anglo-Saxon and German-speaking countries
with high employee participation, while planning is considered less important in
Russia (Keplinger et al. 2012; Moilanen 2007). Due to its perceived inflexibility,
budgeting is also of lower relevance in France and financially oriented incentive sys-
tems may be less effective there (Hoffjan et al. 2012). Similarly, in China, budget-
ing plays a minor role and incentives are only weakly linked to budgets (O’Connor
et al. 2011). Subsidiaries in countries with high individualism index are prone to
13
Table 9 Environment and local networks of subsidiary

Factor No. Sources
Culture, traditions 13 Avison and Malaurent (2007), Beard and Al-Rai (1999), Carr and Tom-
kins (1996), Chow et al. (1999), Dossi and Patelli (2008), Hoffjan et al.
(2012), Keplinger et al. (2012), Lovett et al. (2009), Moilanen (2007),
O’Connor et al. (2011), Sheu et al. (2004), Van der Stede (2003) and
Williams and van Triest (2009)
Environmental 13 Abdallah and Alnamri (2015), Borkowski (1999), Chang et al. (2009),
uncertainty Dossi and Patelli (2010), Gencturk and Aulakh (1995), Giacobbe
et al. (2016), Hassel (1991), Hassel and Cunningham (1996), Kihn
(2007, 2008), Mahlendorf et al. (2012), Moilanen (2007) and Mong‑
iello and Harris (2006)
Market requirements 12 Al Chen et al. (1997), Al-Husan and James (2003), Busco et al. (2008),
Carr and Tomkins (1996), Dossi and Patelli (2008), Gencturk and
Aulakh (1995), Hoque and Chia (2012), Kihn (2008), Lowe et al.
(2000), Lin (2014), Mongiello and Harris (2006) and O’Connor et al.
(2011)
Legal and political 10 Avison and Malaurent (2007), Beard and Al-Rai (1999), Fernandez-
conditions Revuelta Perez and Robson (1999), Lowe et al. (2000), Masquefa
(2008), Moilanen (2007, 2008), Schaaper et al. (2011), Sheu et al.
(2004) and Taylor (1999)
Local embeddedness 7 Andersson and Forsgren (1996), Harzing (2001), Lin (2014), Mahlen‑
dorf et al. (2012), Martinez and Jarillo (1991), Schaeffer et al. (2014)
and Yu et al. (2006)
Labor market and 5 Carr and Tomkins (1996), Chang et al. (2009), Lowe et al. (2000), Moil-
education anen (2007) and Sheu et al. (2004)
Economy 5 Lowe et al. (2000), Moilanen (2007, 2008), Schaaper et al. (2011) and Yu
et al. (2006)
Language 3 Avison and Malaurent (2007), Björkman and Piekkari (2009) and Sheu
et al. (2004)
implement a local PMS that competes with the headquarters’ PMS for influencing
subsidiary decisions (Dossi and Patelli 2008). In some emerging countries, West-
ern MC tools like BSC, despite being implemented for reporting matters, are not
used for decision making by the subsidiary management (Moilanen 2007; O’Connor
et al. 2011). Similarly, management information systems that are inconsistent with
local business traditions lack acceptance in the host country (Avison and Malaurent
2007; Sheu et al. 2004). Managers in countries with uncertainty-avoiding culture
prefer clear regulations and accept the centralization of decision making (Lovett
et al. 2009; Williams and van Triest 2009). In Middle Eastern cultures social ties
and trust outweigh written contracts in importance (Beard and Al-Rai 1999). Simi-
larly, in Eastern Europe and Russia personal relationships are valued and personal
communication supports formal reporting (Keplinger et al. 2012; Moilanen 2007).
For the implementation of MC, a basic understanding of a subsidiary’s national
culture is key. While Western cultures show a low tendency to avoid conflicts and
generally accept criticism, Russian employees are more conflict averse (Keplinger
et al. 2012) and for Chinese employees public criticism even means to lose their face
13
(Avison and Malaurent 2007). These facts need to be taken into account when con-
flicts arise. Observations on culture and tradition derive from qualitative and quan-
titative studies including emerging countries like Mexico, China and Russia as well
as Western countries. Insights on the importance of budgeting in specific countries
(Hoffjan et al. 2012; Keplinger et al. 2012) as well as on communication and conflict
aversion originate from qualitative studies (Avison and Malaurent 2007; Keplinger
et al. 2012). Recent studies still report on the effects of host country culture and tra-
ditions, so this issue seems not to have disappeared with time. Main results relate to
output control and the introduction of management information systems. Some con-
trol mechanisms appear to lack legitimacy in host countries and, therefore, may not
lead to the desired results. Communication and social relationships between head-
quarters and subsidiaries could partly compensate for this shortfall.
With growing environmental uncertainty the emphasis on financial measures
(Giacobbe et al. 2016; Hassel 1991; Kihn 2007), as well as the importance of non-
financial indicators, increases (Abdallah and Alnamri 2015; Dossi and Patelli 2010;
Kihn 2007). The dynamic environment of a subsidiary requires adapting non-finan-
cial controls (Borkowski 1999; Kihn 2007) and asks for intensified communication
between subsidiary and headquarters to ensure stable performance at the subsidi-
ary (Hassel and Cunningham 1996; Moilanen 2007). Increasing complexity of PMS
due to high dynamism lowers the acceptance of such measures (Hassel 1991; Mahl-
endorf et al. 2012) and diminishes their influence on subsidiary decisions (Mahl-
endorf et al. 2012). In a dynamic environment, output control is more difficult to
apply as precise goals are hard to define (Gencturk and Aulakh 1995; Hassel and
Cunningham 1996; Mongiello and Harris 2006). MNCs complement output control
with process controls in response to environmental uncertainty (Brenner and Ambos
2013; Gencturk and Aulakh 1995; Kihn 2008). Currency fluctuations and inflation
seem not to affect MNC controls on a large scale, as they are only mentioned in one
case study (Moilanen 2007). Findings on environmental uncertainty are reported
predominantly by quantitative studies over the whole investigation period. Although
predictability of financial goals is limited, these measures are widely used to control
subsidiaries in dynamic environments, however, frequently complemented with non-
financial measures, process and social control. These findings appear to be consist-
ent and stable over time.
Competitive markets require sophisticated MC mechanisms. In such environ-
ments, monitoring activities seem more effective than controlling output to achieve
higher performance (Gencturk and Aulakh 1995). High competition increases the
importance of MC, as well as the pressure on cost efficiency (Al Chen et al. 1997;
Al-Husan and James 2003; O’Connor et al. 2011). At subsidiaries in competitive
markets, PMS has higher influence on subsidiary decisions (Dossi and Patelli 2008)
and diverse measurement perspectives including non-financial indicators become
increasingly important (Dossi and Patelli 2008; Hoque and Chia 2012; Kihn 2008).
Markets that necessitate high product diversity challenge production as well as
supervisory systems and increase the complexity of MC (Lowe et al. 2000). Adapt-
ing products and services to local market requirements demands a certain auton-
omy and seems incompatible with tight control and culture transfer from headquar-
ters (Lin 2014). Requirements of local markets may contradict global strategy and
13
profitability necessities, thus causing goal conflicts (Busco et al. 2008). This affects
the PMS of subsidiaries and either leads to local adaptation of global MC systems
e.g., by including indicators that match local requirements (Dossi and Patelli 2008;
Mongiello and Harris 2006) or to subsidiaries that manage their local business while
relying on their own measures and systems, which maintains goal conflicts (Busco
et al. 2008; Dossi and Patelli 2008) and lowers the influence of headquarters on sub-
sidiaries (Dossi and Patelli 2008). Since 2006 the influence of market requirements
on PMS has been a major research interest, indicating that PMS needs to serve both,
headquarters and subsidiary needs to be of use for decision making. Findings from
qualitative studies match those from quantitative studies.
Political and legal conditions influence MCSs. Entering transitional markets
such as China may come along with ownership and control restrictions (Taylor
1999) although a recent study claims that these restrictions have diminished at least
in China (Schaaper et al. 2011). Moreover, applicable laws may change unexpect-
edly in emerging countries (Beard and Al-Rai 1999; Moilanen 2008). Political influ-
ence is not a phenomenon limited to emerging countries, however; a case in Europe
illustrates that political influence in form of subsidies provided by the state and the
EU for an otherwise unprofitable subsidiary led to unrealistic budgeting processes
(Fernandez-Revuelta Perez and Robson 1999). Strong influence of trade unions in
the UK demands that MC needs to comply with agreed procedures (Lowe et al.
2000). In addition, the deregulation of industries creates the demand to implement
PMS in previously protected sectors (Masquefa 2008). Diverging legal requirements
may complicate the launch of a global management information system as it has to
meet the legal regulations of all countries involved, which is challenging even within
Europe (Moilanen 2007, 2008; Sheu et al. 2004). Different legal backgrounds may
lead to localized solutions (Avison and Malaurent 2007; Sheu et al. 2004) and, in the
worst case, to parallel systems with double entry procedures (Avison and Malaurent
2007). Contributions on legal and political frameworks derive from case studies,
which suggest that unstable legal conditions and the diverging legal frameworks of
the involved countries seem to complicate the introduction of MCSs.
Local embeddedness is characterized by the interactions of a subsidiary with its
local business network and environment. High local embeddedness diminishes the
control of headquarters as perceived by the subsidiary and may impede the influ-
ence of headquarters (Andersson and Forsgren 1996). However, locally embedded
firms operate largely autonomously and seem not to require much coordination (Lin
2014; Martinez and Jarillo 1991). However, expatriates appear to be an important
coordination mechanism in locally embedded subsidiaries (Harzing 2001). When a
subsidiary establishes links with local firms or local governments in emerging coun-
tries, headquarters reduces the extent of close monitoring and influence on subsidi-
ary decisions (Yu et al. 2006). PMS strongly influence subsidiary decisions when
their local embeddedness is high (Mahlendorf et al. 2012). However, the interactive
use of PMS at locally well-connected subsidiaries weakens performance, as it seems
to tie resources in internal discussions that could be used more effectively in local
relationships (Schaeffer et al. 2014). Observations on local interactions of foreign
subsidiaries have been reported in quantitative papers over the whole investigation
13
period. To sum up, locally embedded subsidiaries require a certain autonomy to

react to the local environment.
Labor markets, in particular, a country’s availability of high-skilled staff and
wage levels affect MC. High wages in European countries require strategic invest-
ments to secure competitive advantages through innovation (Carr and Tomkins
1996) or encourage foreign MNCs to search for alternatives in form of short-term
contracts, that require tight control (Chang et al. 2009). A well-trained workforce
facilitates the implementation of supervisory systems (Lowe et al. 2000), the launch
of management information systems (Sheu et al. 2004) and simplifies the alignment
of a foreign subsidiary with Western corporate culture (Moilanen 2007). A lack of
skilled workforce delays training programs and may result in having to outsource
tasks (Sheu et al. 2004). Findings on this factor are based on qualitative studies,
which suggest that the availability of well-educated staff simplifies the control of
foreign subsidiaries.
Economic conditions in form of crisis situations or the economic stage of a coun-
try shape MC. After the economic crisis in 2009, Western MNCs centralized MC
and expatriates at foreign subsidiaries were widely replaced by local managers and
additional trainings (Schaaper et al. 2011). In emerging economies reporting stand-
ards may differ from requirements in industrial countries. MNCs need to ensure a
certain standard for reliable reporting and therefore put some effort into informal
relationships and operational control through supervision (Moilanen 2007, 2008).
However, commitment of managers may be high as a job at an MNC appears to be
desirable in emerging countries (Lowe et al. 2000). Economic environment is inves-
tigated in the context of legal and political conditions as well as of uncertainty and
has been explored by predominantly qualitative studies with isolated results.
Subsidiaries with low command of the language spoken at headquarters face
more centralized and process control than those at countries with higher language
competence (Björkman and Piekkari 2009). Particularly the launch of manage-
ment information systems is complicated if language command is weak at subsidi-
aries, which hinders communication and comprehending instructions (Avison and
Malaurent 2007). Using information systems in the group language, not in the local
language increases employee resistance to the new system and requires additional
training and other local resources (Avison and Malaurent 2007; Sheu et al. 2004).
Findings on this factor are scarce with limited generalizability.
7 Discussion
7.1 Decentralized versus multinational organizations
Large decentralized firms and multinational corporations have certain elements in

common. Decentralized firms tend to delegate significant decision-making author-
ity to subunit managers, as usually local or specialized knowledge is available on a
business unit level, which allows adequate and timely decisions (Blocher et al. 2010;
Horngren et al. 2012). These benefits, however, may be outweighed by adverse
effects. Decentralization may lead to suboptimal decisions when the benefit of one
13
subunit goes at the expense of another unit due to the management focusing on sub-
unit results rather than corporate ones (Anthony et al. 2014; Horngren et al. 2012).
MC in decentralized firms relies strongly on formal information through integrated
reports or budgeting processes (Chenhall 2003). These attributes are confirmed by
articles included in our review. We found, that decentralized firms if necessary con-
cede decision rights to subsidiaries to adapt to market developments (e.g., Mongiello
and Harris 2006; Williams and van Triest 2009). Moreover, we identified negative
effects of centralization hindering flexibility in local subsidiaries (e.g., Cools et al.
2008; Richards and Hu 2003) or resulting in cost increases caused by the imple-
mentation of control mechanisms as imposed by headquarters (e.g., Avison and
Malaurent 2007; Cools and Slagmulder 2009). Negative effects of decentralization
in terms of limited controllability of conditions are reported in case studies (e.g.,
Busco et al. 2008; Frow et al. 2005). A strong focus on formalized reporting and
procedures or complex budgeting processes, is suggested by various studies (e.g.,
Chung et al. 2006; Jaussaud and Schaaper 2006; Van der Stede 2003). Additionally,
we identified means to align subsidiaries with corporate goals like PMS and incen-
tives (e.g., Mahlendorf et al. 2012; Roth and O’Donnell 1996).
MNCs are often decentralized as the feasibility of headquarters control for geo-
graphically disperse units is low (Horngren et al. 2012). In addition to challenges in
decentralized domestic companies, local business environments and cultural differ-
ences add complexity in MNCs (Horngren et al. 2012; Merchant and Van der Stede
2017). Our findings confirm that culture and business traditions in the host country
may complicate the transfer of control mechanisms due to lacking acceptance (e.g.,
Avison and Malaurent 2007; Hoffjan et al. 2012). However, cultural dimensions are
not the only determinant for the design of MCS. Market requirements and legal as
well as political conditions may differ significantly from the home market and some
control mechanisms seem ineffective when improperly adapted to the locally pre-
vailing conditions (e.g., Beard and Al-Rai 1999; Lowe et al. 2000). In addition, we
find that MNC characteristics such as size, degree of internationalization and cor-
porate culture (e.g., Epstein and Roy 2007; Kihn 2010), and particularly the home
country of the MNC (e.g., Chow et al. 1999; O’Connor et al. 2011) affect MC.
Moreover, the interdependence within the MNC as well as subsidiary characteristics
shape the applied control mechanisms (e.g., Dossi and Patelli 2010; Harzing and
Sorge 2003). The implementation of an adequate PMS as well as information and
communication technologies are suggested to facilitate control in MNCs (Horngren
et al. 2012). Our review further suggests that internationalization activities correlate
with an emphasis on output control (e.g., Gencturk and Aulakh 1995; Kihn 2010)
with attention to non-financial goals to respond to the challenge of various environ-
mental factors in host countries (e.g., Dossi and Patelli 2010; Du et al. 2013). More-
over, a broad range of social control mechanisms as training, meetings or informal
communication complement MCS (e.g., Brenner and Ambos 2013; Martinez and
Jarillo 1991), as indicated only marginally in textbooks on MC. Contrary to what
MC textbooks say, currency exchange rates (Horngren et al. 2012; Merchant and
Van der Stede 2017) seem to be a non-issue for MC in today’s MNCs, as they go
largely unmentioned.
13
Decentralized companies exchange products and/or services between subunits.

Transfer prices for these exchanges aim to coordinate and evaluate the performance
of the subunits. In domestic trade, economic considerations largely determine trans-
fer prices (Blocher et al. 2010; Horngren et al. 2012). In international exchanges, an
integration of managerial and tax objectives is suggested to yield optimum results
(Baldenius et al. 2004). In several case studies on this subject, tax compliance is
described as the overwhelming determinant for the transfer price policy of MNCs
with far-reaching effects on PMS and subsidiary flexibility (Cools et al. 2008; Cools
and Slagmulder 2009; Plesner Rossing 2013). This confirms the statements of
Blocher et al. (2010) and Horngren et al. (2012) on multinational exchanges. Only
one case reports standardized transfer prices according to PMS requirements (Busco
et al. 2008).
7.2 Developed versus emerging countries
MNCs that originate from emerging countries are underrepresented in our review.
Most articles deal with MNCs headquartered in industrialized countries. Only four
studies focus on MNCs from Taiwan or China, other regions are totally neglected.
18 articles investigate subsidiaries in emerging countries, predominantly in Asia,
Eastern Europe or Mexico. Although these subsidiaries are located in different
geographical and cultural areas, they have certain elements in common. While in
developed countries legal and economic stability is widespread, emerging countries
show relatively volatile legal and economic conditions, which poses a challenge
for MC (e.g., Beard and Al-Rai 1999; Moilanen 2008). Education differs between
countries and affects the availability of well-trained staff with sufficient language
command (Moilanen 2007; Sheu et al. 2004). Depending on business traditions of
the respective country, profit-orientation may be less pronounced and business prac-
tices may vary widely from those of the Western world (e.g., Al-Husan and James
2003; O’Connor et al. 2011). To implement a corporate culture that goes in line with
Western business practices, MNCs bank on socialization through intense commu-
nication, meetings, trainings, expatriate managers and process control with clearly
defined standards and procedures as well as the integration of management informa-
tion systems (e.g., Al-Husan and James 2003; Moilanen 2007).
7.3 Findings for theoretical frameworks
To investigate MC at MNCs, a broad range of theories was applied as presented in

Table 10. 16 articles apply more than one theory. Nine case studies are exploratory
using a theory-building approach and therefore do not apply a specific theoretical
frame. Three descriptive studies with quantitative research design do not disclose
a specific theory as framework, but define the investigated control mechanisms
according to renowned literature. In the following section we discuss how our find-
ings relate to the most frequently used theoretical frames, namely Hofstede’s cul-
tural dimensions, contingency and agency theory.
13
Table 10 Overview of influencing factors by theory (multiple assignment of articles)

Theory Total articles MNC MNC Relation to Subsidiary Subsidiary
character- environ- subsidiary character- environment
istics ment istics
Culture Dimensions 18 6 5 11 6 11
Contingency 17 10 4 10 6 10
Agency 13 5 4 7 11 4
Other theories 25 15 10 13 6 14
Exploratory/descrip- 12 6 6 4 6 6
tive
Hofstede’s (2001) cultural dimensions were applied 18 times to analyze differ-

ences between subsidiaries’ host countries as well as cultural distance between the
country of origin and the host country. Hofstede (2001) defines culture along five
dimensions, namely individualism versus collectivism, power distance, uncertainty
avoidance, masculinity versus femininity and long term versus short term orienta-
tion. In our review we find support for cultural differences between countries. In
countries with short-term orientation like UK and US, short-term measures are
emphasized, while in Germany and Japan, which are attributed with long-term ori-
entation, longer time horizons prevail for PMS (e.g., Borkowski 1999; Coates et al.
1995). However, in case of the former, the cultural dimensions could tie to the capi-
tal market orientation in Anglo-Saxon countries, which also fosters short-term hori-
zons. For uncertainty avoidance some unexpected results were identified: Russian
and French cultures show high scores on uncertainty avoidance, planning, however,
appears less relevant (e.g., Hoffjan et al. 2012; Keplinger et al. 2012). In the case of
Russia, the volatile environment, which limits the validity of plans, could explain
this contradictory finding (Moilanen 2007). Although power distance is relatively
low and the individual index is high in the US, MNCs show strong centralization
tendencies (e.g., Chow et al. 1999; Williams and van Triest 2009) contrary to theo-
retical assumptions. In addition, these attributes are suggested to favor the inclusion
of non-financial indicators which is also not confirmed for the US (e.g., Borkowski
1999; Coates et al. 1995). While overall calculations of distance based on cultural
dimensions show certain validity, individual attributes of a national culture appear
less significant, given the large variations in MNCs related to corporate, industry
or country characteristics, besides culture. Hofstede’s cultural dimensions are often
used to define cultural distance in combination with other theories, e.g., contingency
theory or agency theory.
Contingency theory was applied 17 times as theoretical lens identifying a large
amount of influencing factors on the design of MC. Findings are based predomi-
nantly on Western MNCs located in Europe or the US with subsidiaries in devel-
oped countries. Contingency theory examines the effects of MNC characteristics
or the subsidiary’s environment in terms of uncertainty or market requirements as
well as subsidiary characteristics. Particularly the degree of internationalization and
interdependence between business units and their effects on PMS (e.g., Kihn 2008;
13
Mongiello and Harris 2006) and the use of non-financial indicators have been ana-
lyzed (e.g., Chung et al. 2000; Kihn 2007). Both, a high degree of internationali-
zation as well as environmental uncertainty encourage the focus on output control
complemented by non-financial performance measures and process controls. Cul-
ture is an essential determinant; however, characteristics of MNCs like degree of
internationalization, strategy or industry as well as external context factors such as
environmental uncertainty or capital market orientation might overlap with cultural
dimensions (e.g., Harzing and Sorge 2003; Van der Stede 2003). For coordinating
global activity, MNCs aim at transferring their MCS to different countries. The PMS
is adapted according to uncertainty and market requirements by including broader
measurement ranges (e.g., Dossi and Patelli 2010; Kihn 2007). Adaptation to host
country specifications requires a certain autonomy with decision rights for local
management (e.g., Mongiello and Harris 2006; Yu et al. 2006). MNCs rely on differ-
ent control mechanisms like training, expatriates or process control to transfer their
corporate culture and MCS to foreign subsidiaries and thereby narrowing effects of
host country characteristics (e.g., Al-Husan and James 2003; Lin 2014).
Agency theory (Jensen and Meckling 1976) has been applied 13 times since 1996
to investigate headquarters control mechanisms in subsidiaries in developed as well
as emerging countries. Besides output control in form of PMS and incentives, for-
eign subsidiaries (agents) are coordinated by defining decision rights and other
process controls as well as communication and positioning expatriate managers to
reduce information asymmetry between headquarters and subsidiaries (e.g., Bren-
ner and Ambos 2013; Chang and Taylor 1999). Headquarters nationality, character-
istics of subsidiaries (size, age, form of establishment) as well as interdependence
between business units are determining factors for MCS within agency frameworks
(e.g., Dossi and Patelli 2010; Yu et al. 2006). Interdependence between business
units is related to intense communication and incentives as well as participation
of subsidiaries in the design of PMS (e.g., Dossi and Patelli 2010; Du et al. 2013;
O’Donnell 2000). The environment of the subsidiary seems less relevant for agency
frameworks.
Each theoretical frame deals with various sets of control mechanisms as well as
influencing factors. Nevertheless, certain tendencies are visible. Hofstede’s cultural
dimensions focus as is to be expected on the culture of the host country and cultural
distance as well as on centralization and budgeting but provide no explanation for
the presence of expatriate managers that are addressed by agency theory as well as
contingency theory. Decentralization by conceding decision rights to subsidiaries is
addressed particularly by agency theory. Culture, however, is not an issue in these
articles. Contributions applying contingency theory include a broad range of context
factors, with culture just being one among many others.
8 Conclusion
The control of foreign subsidiaries is crucial for MNCs. The high number of studies
on MC in MNCs indicates that this subject represents a research focus. The main
contribution of our paper is to provide an overview of the state of research on MC
13
at MNCs over the past 25 years. We have examined a broad spectrum of control
mechanisms to provide a common knowledge base for future research, depicting and
categorizing numerous influencing factors, their interrelations and effects on several
control mechanisms. This research contribution discusses conflicting findings and
limitations of certain mechanisms and presents research designs, applied theoreti-
cal frames and a summary of the development of control mechanisms as well as of
the examined influencing factors over time. There is consensus that output controls
particularly in form of financial measures are prevalent and widely accepted. Non-
financial measures complement financial output controls with regard to complex
environments. Process controls ensure that employees at subsidiaries comply with
guidelines and act in line with the MNC’s goals. Social controls are the trailblazer
for other mechanisms of control, particularly in emerging countries, where cer-
tain standards need to be established. MNCs apply combined control mechanisms
depending on various influencing factors, such as the company environment that
affects the MCS (Granlund and Lukka 1998), as well as internal factors like size or
strategy (Otley 2016). Some of these, such as corporate strategy, are associated with
headquarters; others are attributed to the subsidiary or to the relationship between
headquarters and subsidiaries. Most studies investigate more than one influencing
factor and identify interactions between these factors. Hence it is safe to say that a
combination of factors shape MC at MNCs.
The findings of this paper are of high practical relevance for MNCs. Output
controls, especially financial figures, are widely understood and accepted across
countries and sectors, which enables benchmarking. Non-financial measures allow
adjustment to local requirements and increase the significance of PMS under envi-
ronmental uncertainty. A broad measurement focus, comprising financial and
non-financial indicators can prevent a loss of control over a subsidiary. Neverthe-
less, PMS that are too complex lose influence due to their incomprehensibility. MC
should be adapted to the environment of a subsidiary; especially market require-
ments, culture, legal frameworks, and languages should be taken into account when
implementing MCS. Otherwise, MNCs risk that control mechanisms are ineffective
or even cause additional costs. Social controls tend to be neglected, although they
smooth the way for process and output controls. Training serves to transfer both
knowledge and corporate culture to subsidiaries and ensures that MCSs are, on the
one hand, applied correctly and, on the other hand, accepted by subsidiaries—both
requirements for effective control. Frequent communication between subsidiaries
helps to develop social relationships, which support introducing MC and resolving
conflict situations. Expatriates provide control over subsidiaries, which is particu-
larly important when setting-up new subsidiaries if expatriates are familiar with host
country conditions. Process controls are useful mechanisms to control the behavior
of employees and align it with company objectives. However, the extensive use of
such controls limits flexibility and adaptions to local requirements. Culture is a criti-
cal factor for the effective control of subsidiaries. The nationality of the headquar-
ters shapes the control exerted over subsidiaries. Managers at headquarters should
realize that these control mechanisms might not be fully understood or accepted in
other countries and their respective cultural backgrounds or business traditions.
13
Our review also provides recommendations for management accountants. Social

relationships are important for implementing MCSs and enhancing the reliabil-
ity of reporting. Management accountants should build and foster social ties with
other departments and subsidiaries. A basic understanding of the culture, language,
and other characteristics of the subsidiary’s host country is important to be able to
implement and coordinate MCSs at foreign subsidiaries. The significance of non-
financial measures increases with uncertainty and cultural, as well as geographical
distance. Management accountants should familiarize themselves with these meas-
ures and implement them in PMS and reporting where appropriate.
Despite the existence of a comprehensive research body on MC at MNC, our
paper reveals research gaps and identifies interesting avenues for future research.
Research on social control is relatively fragmentary and in the US underrepre-
sented. Expatriate managers are widespread means of control; little is so far known
about adequate preconditions for their effective control. The role of social relation-
ships and shared values as fundamental factors for successful implementation of
MC partly remains vague. The introduction of management information systems
has been investigated mainly in case studies covering European MNCs. Quantita-
tive research designs and findings on other regions could shed different light on this
issue.
Although we found numerous influencing factors, there still remain unexplored
areas for future research. The majority of extent studies examines manufacturing
firms or cross-sectional samples without discussing the differences between sectors;
the retail and services sectors remain underrepresented. A comparison of various
sectors could identify and discuss diverging practices across sectors. Control of spe-
cific business functions like marketing or R&D were not a focus of our review, MC
related to these functions as well as the purpose of a subsidiary could become sub-
ject to further research. Only few papers investigate the form of subsidiary establish-
ment. Further research could examine MC differences for various forms of estab-
lishment including greenfield investments, acquisitions, and joint ventures. Some
studies imply that the ownership structure, whether a state-owned or founder-owned
company, influences MC. Particularly family ownership impacts international activi-
ties of companies (Mitter et al. 2014). Evidence on ownership types, e.g., founder,
family or the public is lacking. Moreover findings on small MNCs are currently
scarce. The environment of headquarters also shapes its MCS, with nationality of
the headquarters being the only factor, which has been investigated comprehen-
sively so far. In the reviewed studies, the vast majority of MNCs is headquartered
in industrialized countries. Moreover, there is only scarce evidence on subsidiar-
ies in emerging countries outside China—no study from regions like India, South
America or Africa was available. Results relating to capital market orientation are
mainly from the US, with occasional results from Europe and missing insights on
other regions. Moreover, relationships and interactions between country characteris-
tics like culture or capital market orientation remain unclear, for example related to
the short-term orientation of MNCs. Following the successful implementation of the
internet around the world at the end of the 1990s, technological innovations related
to MC were investigated in some case studies. Cloud computing could initiate a sim-
ilar wave of innovations, which might be reflected in MCS. Other factors might exist
13
in the environment of an MNC that influence MC: Some are suggested by case stud-
ies or qualitative interviews with small sample sizes, for example, effects of strategy
implementation and limited controllability of environmental conditions as well as
the legitimacy of control mechanisms in different regions. The same applies also to
technology, capital market orientation as well as legal, political and economic con-
ditions. These factors could be examined by quantitative research designs to confirm
their validity.
We identified contradictory findings which could be subject to further research:
The usefulness of incentives based on PMS is unclear and the effects of interna-
tionalization on process controls as well as the relationship of shared values and
decentralization remain so far unsolved. Moreover, it appears that the explanatory
power of cultural dimensions for control mechanisms in MNCs lacks clarity. While
cultural distance was investigated mainly under the theoretical lens of Hofstede’s
cultural dimensions, other cultural studies (e.g., Trompenaars and Hampden-Turner
2012) could enhance the understanding of cultural effects. Contributions comparing
cultural differences within Europe date back to the early 2000s. Developments like
the European Single Market encourages harmonization of legal and economic con-
ditions and could support a more converging business culture within Europe, which
represents an interesting avenue for further research. Many factors shape the envi-
ronment of foreign subsidiaries. Qualitative case studies suggest effects of education
and language on MCS. These factors could be investigated by broad-based quanti-
tative research designs. Moreover, compliance with legal requirements is essential
for MNCs. So far, this factor has been investigated solely for tax compliance. Legal
compliance issues like the Sarbanes–Oxley Act in the US, other corporate govern-
ance standards or corporate codes of conduct and fraud prevention could be inves-
tigated related to MC. As reported in case studies, tax regulations shape transfer
prices, thereby replacing managerial requirements. Influencing factors for determin-
ing transfer prices in MNCs also represent an interesting research field.
We have observed a shift in the focus of articles following the financial crisis
since 2007. Although economic crises are considered to influence MCSs (Asel et al.
2011), only one article examines the effects of an economic crisis on MC of MNCs.
This calls for further, longitudinal, research on this topic. Recent protectionist ten-
dencies indicate increasing skepticism towards globalization and MNCs. This could
lead to trade restrictions in some countries and, in turn, foreign subsidiaries could
become even more relevant. In addition, the pressure for the legitimacy of a firm and
for the MC it applies could increase. MC of MNCs is a significant issue for manage-
ment and accounting education. It could be interesting to systematically investigate
the dissemination of knowledge in relevant textbooks, similarly to the analysis of
strategic management accounting literature conducted by Hoffjan and Wömpener
(2006).
As every literature review, this paper has limitations. Articles were searched in
seven scientific databases with thoroughly selected keywords, complemented by a
search for core contributions referenced in the identified articles. Nevertheless, the
search may not have captured all articles that address the subject of this review. The
focus of this review is on scientific journals and excludes monographs, conference
papers and journals for practitioners. Articles in languages other than English were
13
ignored. The papers have been analyzed according to replicable criteria using stand-
ardized review protocols. Nevertheless, the interpretation of results in this review
are contingent on the authors, with the limitation that other researchers might have
clustered factors differently.
Acknowledgements Open access funding provided by FH Salzburg - University of Applied Sciences.

We thank the participants of the 40th European Accounting Association Annual Congress 2017 for help-
ful comments on an earlier version of this paper. We thank Ingrid Hovdar-Stojakovic for her support in
this research project.
Compliance with ethical standards
Conflict of interest The authors declare that they have no conflict of interest.
Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 Inter-
national License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribu-
tion, and reproduction in any medium, provided you give appropriate credit to the original author(s) and
the source, provide a link to the Creative Commons license, and indicate if changes were made.
Appendix: Research design of included articles
Author/year Quantitative Qualitative Country of Country of Sector

headquarters subsidiary
Survey Archive Interview Case
Abdallah and Alnamri ✔ N.D. SA M

(2015)
Al Chen et al. (1997) ✔ JP US M
Al-Husan and James ✔ FR JO SM
(2003)
Andersson and ✔ SE N.D. Cross
Forsgren (1996)
Aulakh and Gencturk ✔ US N.D. M
(2000)
Avison and Malaurent ✔ FR CN M
(2007)
Beard and Al-Rai ✔ US JO Cross
(1999)
Björkman and Piekkari ✔ UK US Europe CN FI Cross
(2009)
Borkowski (1999) ✔ CA DE JP UK US Cross
US
Brenner and Ambos ✔ ✔ Europe US JP Europe Cross
(2013)
Busco et al. (2008) ✔ CH 130 countries M
Carr and Tomkins ✔ DE UK DE UK US M
(1996)
Chang et al. (2009) ✔ TW UK M
13

Chang and Taylor ✔ JP US KR Cross
(1999)
Chow et al. (1999) ✔ US JP TW TW M
Chung et al. (2000) ✔ N.D. AU Cross
Chung et al. (2006) ✔ DE JP US UK AU IE SG Cross
Coates et al. (1992) ✔ DE UK US N.D. N.D.
Coates et al. (1995) ✔ DE UK US DE UK US M
Cools and Slagmulder ✔ US N.D. M
(2009)
Cools et al. (2008) ✔ US N.D. M
Cooper and Ezzamel ✔ DE N.D. M
(2013)
Crespo et al. (2014) ✔ ✔ Europe JP US PT Cross
Dong et al. (2008) ✔ JP US JP US M
Dossi and Patelli ✔ ✔ N.D. IT Cross
(2008)
Dossi and Patelli ✔ ✔ 17 countries IT Cross
(2010)
Du et al. (2013) ✔ 14 countries BE Cross
Du et al. (2015) ✔ N.D. BE Cross
Epstein and Roy (2007) ✔ US N.D. M
Fee et al. (2011) ✔ AU CN Cross
Fernandez-Revuelta ✔ US ES M
Perez and Robson
(1999)
Finnegan and ✔ N.D. IE Cross
Ni Longaigh (2002)
Frow et al. (2005) ✔ US UK M
Frucot and Shearon ✔ N.D. MX M
(1991)
Gencturk and Aulakh ✔ N.D. US Cross
(1995)
Giacobbe et al. (2016) ✔ ✔ AU N.D. Cross
Harzing (2001) ✔ 9 countries 22 countries M
Harzing and Sorge ✔ 9 countries 22 countries M
(2003)
Hassel (1991) ✔ ✔ FI 15 countries M
Hassel and ✔ FI CA Europe M
Cunningham (1996)
Hassel and ✔ FI CA Europe M
Cunningham (2004)
Hoffjan et al. (2012) ✔ DE FR DE FR M
Hoque and Chia (2012) ✔ UK AU M
Hyvönen et al. (2008) ✔ FI N.D. M
13

Jaussaud and Schaaper ✔ Europe JP CN Cross
(2006)
Keplinger et al. (2012) ✔ AT AT RU US M
Kihn (2007) ✔ ✔ FI N.D. M
Kihn (2008) ✔ ✔ FI N.D. Cross
Kihn (2010) ✔ FI N.D. Cross
Kranias (2000) ✔ JP UK M
Kraus and Lind (2010) ✔ SE N.D. Cross
Lin (2014) ✔ N.D. TW M
Lovett et al. (2009) ✔ US MX Cross
Lowe et al. (2000) ✔ JP JP MX UK M
Mahlendorf et al. ✔ N.D. CN Cross
(2012)
Martinez and Jarillo ✔ N.D. ES M
(1991)
Masquefa (2008) ✔ N.D. FR S
Moilanen (2007) ✔ FI EE LT LV RU M
Moilanen (2008) ✔ FI EE LT LV RU N.D.
Mongiello and Harris ✔ ✔ Europe Europe S
(2006)
Neves and Bugalho ✔ PT emerging M
(2008) countries
O’Connor et al. (2011) ✔ ✔ CN N.D. CN Cross
O’Donnell (2000) ✔ US N.D. Cross
Paik and Sohn (2004) ✔ JP KR SG TW Cross
US
Plesner Rossing (2013) ✔ Europe Europe US M
Pudelko and Tenzer ✔ DE JP US DE JP US Cross
(2013)
Quattrone and Hopper ✔ JP US JP US M
(2005)
Richards (2000) ✔ US MY SG TH M
UK
Richards and Hu ✔ US MY SG Cross
(2003)
Roth and O’Donnell ✔ CA DE JP UK CA DE JP M
(1996) US UK US
Schaaper et al. (2011) ✔ FR JP CN M
Schaeffer et al. (2014) ✔ N.D. CN Cross
Seal (2001) ✔ US UK N.D.
Sheu et al. (2004) ✔ TW US NL NO TW M
US
Taylor (1999) ✔ JP CN M
Van der Stede (2003) ✔ BE Europe Cross
Wilkinson et al. (2008) ✔ JP N.D. Cross
13

Williams and van ✔ 15 countries 18 countries S cross
Triest (2009)
Yu et al. (2006) ✔ TW 7 countries Cross
2-digit country codes, N.D. = not defined, Sector: M = manufacturing, S = services, cross = cross

sectional
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Management Control in Multinational Companies: A Systematic Literature Review

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Rev Manag Sci (2019) 13:875–918

Management control in multinational companies:

Abstract Executing management control across borders is crucial for multina-

Keywords Management control · Management accounting · Multinational

JEL Classification M41 Accounting · F23 Multinational Firms

Companies that establish international subsidiaries need to adapt to economic,

An MNC is characterized by geographically dispersed units whereby headquarters

2.2 Management control and management control systems

To investigate the current state of research on MC in MNCs, a systematic litera-

Table 1 Criteria for inclusion

Search result in databases: 1.664

contribution with focus on African or South American MNCs or subsidiaries could

Table 2 Most cited articles within selection

O’Donnell (2000) 13 Foreign subsidiary control and interdependence

Table 3 Research designs Quantitative design Articles Qualitative design Articles

Survey 35 Case study 23

Table 4 Development of research focus on control mechanisms (multiple assignment of articles)

Output control prevails in research on MC at multinationals. PMS (23 studies) and

56 articles examine the relevance of process controls with a focus on centraliza-

Applying formal and informal social controls is subject of investigation of 43 stud-

communication between subsidiaries and headquarters allows for exchanging infor-

communication accompanying budgeting processes, PMS or the implementation of

6 Factors influencing control mechanisms at MNCs

A variety of MNC characteristics representing either demographic features or relat-

References with quantitative research design in bold

subsidiary’s operations is a precondition for setting and monitoring targets (Giaco-

6.2 Environment in the country of origin

Table 6 Environment in the country of origin

References with quantitative research design in bold

1999). Centralization tendencies appear to be weaker in European corporations

6.3 Relationships of subsidiaries within MNCs

Several factors shape the relationship of subsidiaries with headquarters as well as

Table 7 Relationship of subsidiaries within MNCs

References with quantitative research design in bold

to cultural distance, geographical distance seems to impair only individual control

A broad range of subsidiary characteristics, as listed in Table 8, influences MC. 29

References with quantitative research design in bold

6.5 Environment and local networks of subsidiaries

The environment of subsidiaries shapes the control system of foreign subsidiaries.

Table 9 Environment and local networks of subsidiary

References with quantitative research design in bold

period. To sum up, locally embedded subsidiaries require a certain autonomy to

7.1 Decentralized versus multinational organizations

Large decentralized firms and multinational corporations have certain elements in

Decentralized companies exchange products and/or services between subunits.

7.2 Developed versus emerging countries

7.3 Findings for theoretical frameworks

To investigate MC at MNCs, a broad range of theories was applied as presented in

Table 10 Overview of influencing factors by theory (multiple assignment of articles)

Hofstede’s (2001) cultural dimensions were applied 18 times to analyze differ-

Our review also provides recommendations for management accountants. Social

Acknowledgements Open access funding provided by FH Salzburg - University of Applied Sciences.

Compliance with ethical standards

Appendix: Research design of included articles

Author/year Quantitative Qualitative Country of Country of Sector

Abdallah and Alnamri ✔ N.D. SA M

Author/year Quantitative Qualitative Country of Country of Sector

Author/year Quantitative Qualitative Country of Country of Sector

Author/year Quantitative Qualitative Country of Country of Sector

Table 1 Criteria for inclusion

Table 2 Most cited articles within selection

Table 3 Research designs Quantitative design Articles Qualitative design Articles

Table 4 Development of research focus on control mechanisms (multiple assignment of articles)

Table 6 Environment in the country of origin

Table 7 Relationship of subsidiaries within MNCs

Table 9 Environment and local networks of subsidiary

Table 10 Overview of influencing factors by theory (multiple assignment of articles)