The International Control Conundrum with Exchange Risk: An EVA Framework

L. JACQUE, P. Vaaler

Journal of International Business Studies

4th Term 2001, vol. 32, n°4, pp.813-832

Departments: Finance

Principal-agent problems betweencorporate parent and subsidiary operationsare frequently exacerbatedin international settings by exchangerate fluctuations betweenthe foreign subsidiary's local currencyand the parent multinationalcorporation's reference currency.We develop a conceptual solutionto this international control conundrumusing Economic Value Addedas the sole performance nume´ raire.Our framework facilitates assessmentof foreign subsidiary performancein emerging-market countriesin the presence of unexpected,exchange-related shocks.