Does country context distance determine subsidiary decision-making autonomy? Theory and evidence from European transition economies

•We study the effect of country context distance on subsidiary decision-making autonomy.•We model for a positive and for a negative effect of distance on autonomy.•Distance will limit overall decision-making autonomy in the CEE region.•Economic and geographic distance has the strongest effects.•The main effects differ per autonomy of particular business functions.

We studied an underrepresented area in the international business (IB) literature: the effect of country context distance on the distribution of decision-making autonomy across headquarters and foreign affiliates. Foreign affiliates directly contribute to the competitive advantages of multinational enterprises, highlighting the importance of such intra-firm collaboration. The division of decision-making autonomy is a core issue in the management of headquarters–subsidiary relationships. The main contribution of our paper is that we confront two valid theoretical frameworks – business network theory and agency theory – that offer contradictory hypotheses with respect to the division of decision-making autonomy. Our study is among the first to examine this dilemma with a unique dataset from five Central and Eastern European transition countries. The empirical results provide convincing support for our approach to the study of subsidiary decision-making autonomy.