Abstract: More and more Chinese firms are reaching out overseas and the performance of their foreign subsidiaries has become a focus of international business research. However, the existing studies have not reached a consistent conclusion on the effect of internal embeddedness on foreign subsidiary performance. In order to resolve the embeddedness paradox, this study explores the different impacts of administrative embeddedness and knowledge embeddedness on foreign subsidiary performance, and further examines the moderating roles of excess control and subsidiary roles. We employ SPSS21.0 to empirically test a matching data including 197 foreign subsidiaries from 167 Chinese multinational firms. The results reveal that: (1) administrative embeddedness negatively affects foreign subsidiary performance, but knowledge embeddedness positively affects foreign subsidiary performance; (2) as the degree of excess control grows, the negative effect of administrative embeddedness on foreign subsidiary performance becomes weaker and the positive effect of knowledge embeddedness on foreign subsidiary performance becomes stronger; (3) administrative embeddedness has a more significant negative impact on the performance of innovation-oriented foreign subsidiaries, and knowledge embeddedness has a more significant positive impact on the performance of contribution-oriented foreign subsidiaries; and (4) the moderating effect of excess control in the relationship between knowledge embeddedness and foreign subsidiary performance is more positive for contribution-oriented subsidiaries, while its moderating effect in the relationship between administrative embeddedness and foreign subsidiary performance is not significantly different for innovation-oriented and contribution-oriented subsidiaries. These results can help Chinese multinational firms to formulate appropriate parent-subsidiary relationship and governance mechanism based on different foreign subsidiary roles, so as to improve their foreign subsidiary performance.

Key words: foreign subsidiary performance, administrative embeddedness, knowledge embeddedness, excess control, subsidiary roles