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Corporate groups have been the subject of much research and debate, but mostly focussing on the position of the controlled company, e.g. the subsidiaries. There has been less focus on the legal position of the parent company in a group and the position of stakeholders in the parent company. To remedy this situation, the article makes a comparative analysis of what duties parent companies have vis-à-vis their subsidiaries. It is shown that national law differs substantially but there is a duty to collect information about the subsidiaries, and a duty to oversee subsidiaries seems to be emerging. On the other hand, there is no duty to actively manage subsidiaries in most of the jurisdictions examined. Subsequently, a comparative analysis is made of the remedies available in national law to protect the interests of stakeholders in the parent companies. Whereas there are several rules on group law which prevent subsidiaries from being used to circumvent regulation aiming to protect stakeholders in the parent company and several rules ensuring transparency about the performance of the group, it is argued that there is a lack of rules ensuring transparency about intra-group transactions and rules ensuring the influence of shareholders in the parent company. Finally, it is argued that the ongoing harmonising of group law in the EU should also include aspects that clarify the position of parent companies in a group.

What determines the value an MNC's headquarters adds to its own affiliates? In this paper, we shed light on this question by linking the embeddedness view of the multinational corporation to the literature on parenting advantage. We test our hypotheses on an original dataset of 124 manufacturing subsidiaries located in Europe. Our results indicate that the external embeddedness of the MNC is an antecedent to headquarters' value creation. We find that headquarters' investments into their own relationships with the subsidiaries' contexts are positively related to the value added by headquarters. Furthermore, this relationship is stronger when the subsidiary itself is strongly embedded. We discuss implications for the MNC literature, embeddedness research, and the literature on parenting and headquarters' roles.

We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference-in-differences framework, we find that stronger liability protection for parents leads to a 5% to 9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than increased production. Cross-sectional tests suggest convexities associated with insolvency and executive compensation drive heterogeneous effects. Overall, our findings highlight the moral hazard problem associated with limited liability.

Since the adoption of the UN Guiding Principles on Business and Human Rights the relationship between human rights due diligence (HRDD) and corporate liability has been a source of legal uncertainty. In order to clarify this relationship, this article compares and contrasts civil liability provisions aiming at implementing HRDD. It explains the legal liability mechanisms in the draft Treaty on Business and Human Rights and in domestic mandatory HRDD legislation and initiatives such as the French Duty of Vigilance Law and the Swiss Responsible Business Initiative. It compares these developments with the emerging case law on parent company and supply chain liability for human rights abuses. It explores the potentially perverse effects that certain civil liability provisions and court decisions might have on companies’ practices. Finally, it makes recommendations for the design of effective liability mechanisms to implement HRDD.

Little research has examined the performance implications of the parent-child relationship post spin-off. Although the parent provided oversight of the child prior to the spin-off, effects of post spin-off links to the child remain unclear. Applying transaction cost and agency theories, our study of 142 firms spun-off between 1986 and 1997 examines how oversight and ownership by the parent firm influence stock market performance post spin-off. We find that while child firms benefit from some links to the parent, having too many links is negatively related to performance. The findings suggest that there is a balance between having too much parental involvement and not enough. Our study extends understanding of post spin-off child firm performance and provides valuable insights for both parent and child firms.

Using a large sample of business groups from more than 100 countries around the world, we show that group information matters for parent and subsidiary default prediction. Group firms may support each other when in financial distress. Potential group support represents an off-balance sheet asset for the receiving firm and an off-balance sheet liability for the firm offering support. We find that subsidiary information improves parent default prediction over and above group-level consolidated information possibly because intragroup exposures are netted out upon consolidation. Moreover, we document that improvements in parent default prediction decrease in the extent of parent-country financial reporting transparency, a finding that suggests that within-group information matters most when consolidated financial statements are expected to be of lower quality. We also show that parent and other group-firms’ default risk exhibits predictive power for subsidiary default. Lastly, we find that within-group information explains cross-sectional variation in CDS spreads. Taken together, our findings contribute to the prior literature on default prediction and have direct relevance to investors, credit-rating agencies, and accounting regulators. This paper was accepted by Suraj Srinivasan, accounting.

This article analyses the possibilities and problematic aspects of the institute of the de facto manager as a basis for applying civil liability to companies under Lithuanian law. The article first presents an analysis of Lithuanian statutory law and court practice related to the conditions and assumptions for the application of the de facto manager institute in order to determine whether this institute can be applied to the company per se. The second part of the article provides an analysis of the statutory law and judicial practice of foreign countries – France, Germany and the United Kingdom – in order to assess the possibilities of applying the de facto manager institute to companies in these countries. Finally, in the third part of the article, after evaluating the status quo of Lithuanian law on the issue of the de facto manager institute and the practice of foreign countries, a critical approach to the possibilities and consequences of applying this institute to companies as a basis for civil liability under Lithuanian law is presented. The author’s conclusions are offered at the end of the article.

There is a lack of theoretical consensus on how multinational enterprises (MNEs) should implement corporate social responsibility (CSR) to build legitimacy, particularly those operating in the smaller Asian emerging market context, where current growth in the global economy is being felt more acutely than elsewhere. This paper argues for theoretical integration of business ethics (BE) and international business (IB) research to address this concern. Hence, we explore the management of CSR strategies by MNE subsidiaries with specific interest on their proactive adoption of strategic CSR to obtain legitimacy in a foreign host country. Drawing on the recent CSR literature and related theories, including stakeholder theory and institutional theory, propositions and a conceptual framework are developed and presented. The framework integrates BE and IB concepts on the different dimensions of CSR and provides a theoretical derived explanation of the process for strategic adoption of global through to more local CSR strategies by MNE subsidiaries to build legitimacy in an emerging market context. In addition, the framework provides valuable insights into the adoption of different ethical approaches or CSR strategies based on the level of ethical pressure in a host country and the degree of CSR ingrainedness in the parent company.

Using an evolutionary model and a sample of 7,166 firms in the manufacturing and technology sectors of Sweden, we find that surviving organizations founded independent of a parent organization have lower long-term failure rates than their protected subsidiary counterparts. Specifically, we find that subsidiary organizations have low mortality rates when compared to independent organizations, but that their mortality rates increase more rapidly during a severe economic downturn. We also find evidence that surviving independent organizations are more capable than subsidiary organizations of using their resources to reduce mortality rates during an environmental jolt. Overall, our findings strengthen the notion that organizational adaptation is linked not only to ecological and strategic processes but also to organizational structure.

This study aimed to investigate the leadership roles of subsidiary board chairpersons (SBCs). To this end, the study focused on the effect of the context of the parent company on the roles of SBCs in enhancing board effectiveness. This can be a response to the call for further investigation on the role of contextual and institutional factors in board effectiveness. An embedded multiple-case study design was used to compare the leadership role of chairpersons of the two groups of boards with high and low effectiveness in a corporation assessed via a multi-source appraisal method. Based on a series of interviews, we compared the mechanisms that differentiated the two groups of boards. Managing conflict between board members and CEO, board members’ motivation, and decision-making influenced by the parent company were salient mechanisms increasing board effectiveness. The findings of the study suggest that SBCs can play a crucial role in keeping the balance between the expectations of different stakeholders including the subsidiary board itself and the CEO on the one hand, and adjusting the way the board interacts with the staff offices of the parent company on the other.