Paradox of MNE Overseas Subsidiary CEO Nationality and Relational Ties Strength on Performance

We examine whether deploying host-country nationals (HCNs) as subsidiary CEOs in multinational enterprises (MNEs) overseas subsidiaries may lead to stronger relational ties to key host-country business contacts and government officials. Furthermore, drawing on an agency perspective of MNE-subsidiary relationship, we examine how strong relational ties may hurt subsidiary performance and how incentive compensation and monitoring may influence this relationship. We combined archival and survey data for 272 MNE subsidiaries operating in South Korea. Our results reveal a paradox in which appointing HCNs subsidiary CEO enhances relational ties to host- country business contacts but such strong relational ties also hurts subsidiary performance, while incentive compensation and monitoring can mitigate such agency costs. Our theory and findings provide unique insights to MNE overseas subsidiary staffing, social embeddedness, and subsidiary performance.