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This paper tests Spekle’s (2001, 2003) transaction cost economics based approach to management control system choices in the hierarchal organisational context. To examine this particular context, we have chosen the setting of head office control of wholly owned foreign subsidiaries. The two testable implications which we provide evidence on are (1) that there are a number of distinct management control systems (archetypes) and (2) the choice of management control system is driven by the activity traits of a firm. A series of interviews based on five firms and our survey evidence based on 167 firms, confirms the existence of different management control system archetypes, but we only find limited support for the association between management control system choices and activity traits as predicted by transaction cost economics. Our results are robust based on further testing conducted. The results in this paper are informative concerning the relevance of transaction cost economics theory in management accounting research and provide a platform for future research.

This paper examines the effect of corporate embeddedness on control choices of a multinational corporation over a wholly owned foreign subsidiary. Researchers and practitioners recognise that multinational corporation headquarters face significant challenges when controlling wholly owned foreign subsidiary operations due to physical distance and the need to adapt to operating in unfamiliar foreign markets. Despite this recognition limited research is available on this issue. Corporate embeddedness refers to the adaption of a subsidiary to other entities throughout the rest of the multinational corporation in terms of tangible and intangible resource flows. Corporate embeddedness appears a significant factor contributing to the viability and success of a wholly owned foreign subsidiary. Based on the transaction cost economies theory of management control this paper investigates the effect of corporate embeddedness on the headquarters’ choice of controls using Spekle (2001) control archetype framework. Specifically corporate embeddedness is linked to transactional attributes including uncertainty, asset specificity, opportunism and bounded rationality, to explore relationships with control archetype choice. The paper proposes that high corporate embeddedness is related to a machine control archetype. Data gathered from a case study of a highly corporately embedded subsidiary of a multinational corporation operating in a regulated consumer products sector is used to examine the link between corporate embeddedness and each of the transactional attributes, and their relationship with headquarters control choices. The evidence provides support to the proposition that high corporate embeddedness is related to machine control archetype. Although action and result oriented machine control archetypes are described separately by Spekle (2001), the controls used by the headquarters suggest a mix of both archetypes.