Proximity at a distance: The relationship between foreign subsidiary co-location and MNC headquarters board interlock formation

• Published in: International business review 2022-08, Vol.31 (4), p.101971, Article 101971
• Main Authors: De Beule, Filip, Elia, Stefano, Garcia-Bernardo, Javier, Heemskerk, Eelke M., Jaklič, Andreja, Takes, Frank W., Zdziarski, Michal
• Format: Article
• Language: English
• Subjects: Board interlocks; HQ-subsidiary relations; Internationalization; Proximity; Resource dependence; Subsidiary co-location; Transnational board interlocks
• ISSN: 0969-5931; 1873-6149
• DOI: 10.1016/j.ibusrev.2021.101971

Corporations seek various relationships, such as board interlocks, with other firms to reduce resource dependencies. The consistent theoretical expectation and empirical finding that physical proximity is an important driver for board interlock formation is seemingly at odds with the emerging and growing literature on transnational board interlock ties. We argue that the effect of proximity on multinational corporation (MNC) board interlock formation can also be attributed to the firms’ internationalization strategy, namely, when they have co-located subsidiaries in foreign markets. We call this “proximity at a distance”. We test our assumptions on a dataset covering almost 43,000 board interlocks among MNC headquarters and their 12 million subsidiary co-location pairs. We confirm that proximity among headquarters increases the odds of interlocking but also find robust evidence that co-located subsidiaries also increase firms’ propensity to interlock, particularly for transnational board interlocks. Our results help provide an explanation for the “paradox of distance” by showing that the interlock between two distant MNCs may be driven by proximity to their foreign subsidiaries. As such, we illustrate how MNCs’ resource-dependent strategic responses can occur at the headquarters level to address uncertainties experienced at the subsidiary level. •Internationalization plays a role in MNC headquarters (HQ) board interlock formation.•MNCs are more likely to interlock when their HQ are co-located in the same country.•Co-located subsidiaries raise the odds of MNCs’ HQs interlocking.•Subsidiary co-location creates “proximity at a distance”.•“Proximity at a distance” explains emergence of transnational board interlock formation.