The performance effects of vertical and horizontal subsidiary knowledge outflows in multinational corporations

• Vertical and horizontal subsidiary knowledge outflows enhance MNC performance.
• Explicitness and communication positively influence subsidiary knowledge outflows.
• National cultural distance and specialized resources moderate intra-MNC knowledge flows.
• Centralization can significantly enhance vertical subsidiary knowledge outflows within the MNC.
• Formalization can have disruptive effects on knowledge flows within the MNC subsidiary network.

Horizontal and vertical subsidiary knowledge outflows in multinational corporations (MNCs) are argued to be central to effective MNC performance. Building on the knowledge-based view of the firm, we develop a conceptual model to investigate the performance consequences, determinants and interaction effects due to coordination and control mechanisms, of horizontal and vertical MNC subsidiary knowledge outflows. The hypotheses are empirically tested with a dataset comprised of survey and archival data from over 200 MNC subsidiaries. Results indicate that explicitness and communication positively influence vertical and horizontal subsidiary knowledge outflows and that national cultural distance, centralization, formalization, and specialized resources moderate these influences. We also find that knowledge outflows to headquarters and to peer subsidiaries enhance an MNC's financial performance (i.e., return on assets). The results provide substantive evidence as to how vertical and horizontal knowledge operate within MNCs.