**Abstract**

This study consolidates the state of academic research using agency theory to explain the various phenomena's in the multinational firm's (MNCs) context. Based on the systematic review of the literature, the author finds that agency theory is used to examine the degree of internationalization, international diversification, born global internationalization, and governance issues in various modes of foreign entries. The author classifies the literature in three broad themes: corporate governance, firm ownership, and born global firms. Agency theory is also used to examine the impact of top management characteristics, board structure, ownership by domestic investors, foreign investors, business group firms, family ownership, and state ownership on the firm internationalization decisions. The study concludes with the research gaps and future research directions.

**Keywords:** Agency Theory, Internationalization, Systematic Review, Ownership, Top Management Team, Board of Directors

### **1. Introduction**

The last three decades have witnessed explosive research on the corporate governance of multinational firms (MNCs). The performance of MNCs is based on four commonly held arguments in the literature. First, MNCs can achieve economies of scale with their knowledge of specific asset exploitation at a larger scale [1]. Second, the internalization of the activities within the firm reduces the agency problem in the MNCs [2, 3]. Third, MNCs can get financial resources at the lowest possible cost in the international market [4, 5]. Finally, MNCs have strong corporate governance mechanisms to maximize the firm value [6, 7]. Earlier studies in the international business literature have been more concerned with the internalization theory to efficiently control the resource allocation to minimize the transaction cost [8]. Buckley and Strange [8] called for use of the agency theory to understanding the governance issue in the MNCs with the inclusion of the strategic and behavioral aspects of the various stakeholders in the different country contexts.

This study reviews the literature on MNCs using the agency theory. The author finds that agency theory is used to examine the degree of internationalization, international diversification, born global internationalization, and governance issues in various modes of foreign entries. Agency theory is used to analyze the

impact of top management characteristics, board structure, ownership by domestic investors, foreign investors, business group firms, family ownership, and state ownership on the firm internationalization decision. Board internationalization and diversity impact the internationalization decision of the firms. TMT internationalization is positively related to the accounting quality of the MNCs. High competition in the international context mitigates the agency cost incurred by reducing the CEO's opportunistic actions and the CEO pay structure is also used to mitigate the agency cost in MNCs. The ownership structure of the MNCs has a strong impact on MNCs strategic actions. Ownership by institutional owners is positively related to firm internationalization due to their active monitoring and international experience. Foreign corporate and institutional ownership was also found to be positively associated with firm internationalization. State ownership has an interesting set of two agency conflicts and has scope for empirical examination.

Further section discusses the article's selection and review strategy. Descriptive analysis of the articles provides information regarding the year-wise, context-wise, journal wise and methodology-wise description of the reviewed articles. Further, the author synthesizes the finding from the literature review and provides an integrated discussion. The final section of the paper discusses the research gaps and future research agenda.
