Psychic distance and budget control of foreign subsidiaries

• This paper has two purposes: (1) to develop a theory about the impact of psychic distance on management control of multinational companies, and (2) to establish that psychic distance is an important factor for future research. We develop the concept of psychic distance, the interaction between geographic distance and culture, and test its impact empirically in a Finnish multinational company.Results show that psychic distance interacts significantly with reliance on budget control in multinational companies, but not in the manner proposed. High budget emphasis is associated with high subunit performance in countries with small psychic distances, but not in countries with larger psychic distances. Budget participation dilutes this impact. This study confirms that psychic distance is a relevant factor to be considered in future research.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Keyword

psychic distance

budget control

multinational companies

culture

Publication and Content Type

ref (subject category)

art (subject category)