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Can Capital Scarcity Help Agency Theory Explain Franchising? Revisiting the Capital Scarcity Hypothesis
... First, we develop an integrative theoretical framework for the analysis of MUF building on the RBV of the firm and TCE (Combs & Ketchen, 1999). Although Hussain and Windsperger (2010) have suggested that both theoretical perspectives in conjunction are powerful in explaining the existence of MUF, Dant, Weaven, Baker, and Jeon (2013) contribution shows that they remain under-employed in the MUF literature. ...
... Using RBV in conjunction with TCE offers a more comprehensive framework and understanding of the MUF phenomenon, as it takes such internal assets into account that create value for the firm and differentiate it from the competition (Gillis et al., 2014;Wu, 2015). We concentrate here on three of the most commonly discussed resources in the franchise literature (Boulay et al., 2016;Combs & Ketchen, 1999;El Akremi et al., 2015;Hussain et al., 2018;Perdreau et al., 2015;Winter et al., 2012) financial capacity, human resources, and market knowledge. ...
... According to RBV, MUF represents a good way for franchisors to overcome the problem of limited resources by providing access to the financial (capital argument) and managerial capacities of franchisees (e.g., Combs & Ketchen, 1999;Garg et al., 2013;Gillis et al., 2014;Hussain & Windsperger, 2010;Jindal, 2011;Kaufmann & Dant, 1996). MUF can be seen as a means used by franchisors to accelerate their network growth by relying on franchisees who have garnered financial resources and experience from their first unit(s). ...
We assess in an integrated model the antecedents of multi-unit franchising as well as its outcomes. Based on both franchisor and franchisee data, the results related to the antecedents of multi-unit franchising are explained by the resource-based view of the firm and transaction cost economics. Furthermore, our study demonstrates that multi-unit franchising leads to positive franchisor consequences in the short term but negative outcomes for multi-unit franchisees. Owning more than three units leads to a significant drop in sales and profits per unit. These findings show that the supposed positive link between multi-unit franchising and franchisor and franchisee outcomes is not linear and thus challenges the idea that multi-unit franchising creates a win-win situation for the system and the individual franchisees.
... Although the agency theory literature has emerged from Rubin's (1978) criticisms related to "the capital marketing explanation of franchising", the two proposals have been combined since the 1990s. Studies such as those of Carney and Gedajlovic (1991), Combs and Castrogiovanni (1994), Combs and Ketchen (1999) indicate that a broader understanding of the franchising phenomenon is not possible (particularly in relation to the contractual mix) without considering elements of both theories taken together. This view was consolidated during the 2000s, when a series of studies came out confirming the greater explanatory power of the composition of the two strands (Castrogiovanni, Combs, & Justis, 2006;Combs & Ketchen, 2003). ...
... In short, when franchising a set of units, the chain invests in an incentive mechanism to save on monitoring costs. The geographical dispersion of the units makes this new combination of monitoring and incentive -resulting from franchising -generate a result superior to the combination resulting from the exclusive use of company-owned outlets (Brickley, Dark, & Weisbach, 1991;Combs & Ketchen, 1999;Lafontaine, 1992). Thus: H1: The greater the geographic dispersion of the chain, the greater the proportion of franchised outlets. ...
... These aspects are jointly employed as a way of increasing the explanatory power of the model. This approach is derived from the resource-based view (Castro, Mota, & Marnoto, 2009) and it is considered the first theoretical lens that sought to explain the adoption of the franchised arrangement (Combs & Ketchen, 1999). Seminal works, such as Oxenfeldt and Kelly (1968) and Caves and Murphy (1976) developed arguments based on the assumption that chain management would prefer to operate only with its own stores, but they choose franchise outlets as a way to leverage the chain growth by providing capital and capacity at a cost that is much lower compared to other available sources on the market (Norton, 1995). ...
This paper revisits a traditional issue in literature on franchising: the contractual mix (i.e., the proportion between franchised and company-owned stores). We analyze 270 Brazilian chains to better understand the Brazilian scenario. We stress the dynamics of this proportion over time considering the perspective of monitoring costs and the difficulty of access to resources as possible explanations. Considering the moment of the Brazilian economy, it is pertinent and opportune to investigate the behavior of the chains in times of turbulence. Panel data covering the 2011-2016 period was analyzed through econometric tools. The results corroborate aspects related to monitoring and incentives advocated by the agency theory, that is: costs of monitoring in elevation due to the geographic dispersion induce a greater proportion of franchised stores. In addition, the concept of dispersion is extended to capture socioeconomic aspects of the different regions occupied by the chains. Effects related to restriction to scarce resources are also noted, but in a less unambiguous way.
... Several studies have examined the impact of franchising on performance (e.g. Aliouche and Schlentrich, 2009;Roh, 2002;Michael, 2002;Combs and Ketchen, 1999;Newby and Smith, 1999), with tentative evidence that franchising leads to better performance or higher success (Ozdemir and Kizildag, 2017). One of the challenges of the success/failure literature is the difficulty to define what success or failure means. ...
... Because franchisees have a residual claim on sales, shirking is avoided and the need for monitoring is diminished (Shane, 1996a). A number of studies have shown that these theories are complementary in explaining franchising proportion (Combs and Castrogiovanni, 1994;Combs and Ketchen, 1999;Boulay, 2010). For example, Combs and Ketchen (1999) suggested that resource scarcity can help agency theory explain franchising. ...
... A number of studies have shown that these theories are complementary in explaining franchising proportion (Combs and Castrogiovanni, 1994;Combs and Ketchen, 1999;Boulay, 2010). For example, Combs and Ketchen (1999) suggested that resource scarcity can help agency theory explain franchising. The authors examine public firms and suggest that those firms are in less need of capital by virtue of their public listing. ...
Purpose
The purpose of this paper is to examine the factors associated with franchisors going public using signaling theory. Listing on the stock market is a sign that the business concept has reached a threshold level of acceptance and success. To increase the relevance of this study to practitioners, the authors focus on franchising-specific controllable variables.
Design/methodology/approach
This study uses a sample of 2,134 franchisors from US drawn from a survey by Entrepreneur magazine during the years 2015–2016. Binominal logistic regression models are used for analysis of the data.
Findings
Findings indicate that time to franchise, international operations, franchise association affiliation, disclosure and extent of top management commitment are factors positively related to the likelihood of a franchisor being publicly listed.
Research limitations/implications
Study findings are based on a sample of franchisors from North America, where financial markets are well developed, and due caution should be exercised before generalizations are made to other contexts. A major implication of this study is that signaling theory may provide an important supplement to the already well-entrenched resource-scarcity and agency theoretic explanations in franchising research.
Originality/value
While signaling theory is growing in importance in the franchising literature, this study is the first to uncover the relationship between company signals and initial public offering.
... The combination of the RST with agency theory is absolutely compatible with the constitution and functioning of franchise chains. There are several literature review publications and meta-analyses that reinforce the relevance of RST in franchise chains (Combs and Ketchen, 1999;Combs et al., 2004;Castrogiovanni et al., 2006;Dant et al., 2011;Gillis and Castrogiovanni, 2012;Rosado-Serrano et al., 2018). ...
... Some authors state that the adoption of the franchise system is convenient for firms with little foundation time as an option for business expansion. Although it is a common situation for new businesses because of their resource scarcity, the franchise business model is capable of providing rapid growth without requiring only the franchisor's financial contributions (Oxenfeldt and Kelly, 1968;Combs and Ketchen, 1999;Mariz-Pérez and García-Álvarez, 2009;Hsu et al., 2010). ...
Purpose
The purpose of this paper is to understand the relationship between franchisee support and brand value in micro-franchise chains. This study aims to understand the importance of value delivery in support to the micro-franchisee aiming at increasing brand value.
Design/methodology/approach
The sample was composed of 148 micro-franchisees belonging to 70 chains located in Brazil. The questionnaire aimed to verify the franchisee’s degree of concordance with the support and brand value provided by the franchisor through a Likert scale. The questionnaire structure comprised of ten metrics associated with franchisee support, four metrics associated with the brand value perception and four potentially intervenient metrics. A regression analysis was carried out to confirm the results for the factor analysis, assuming that the three factors associated with support as independent variables and the brand factor as a dependent variable.
Findings
The three factors related to franchisee support were found to be significant predictors of brand value. Based on the values of the coefficients, it is possible to infer the positive nature of the association. An increase in franchisee support leads to an increase in the franchisee perception about brand value. The positive effect of training and franchisor’s support in prospection and installation improvement on the brand value evaluation by franchisees was supported by the statistical analyses conducted.
Research limitations/implications
This research complements the studies on brand citizenship behavior and franchisee brand commitment; the greater the support provided to the micro-franchisee, the greater its commitment to the brand values of the chain. This contribution is critical because we deal with micro-enterprises in a business environment with an intense resource scarcity. These aspects place restrictions on the delivery of support and brand value in these franchise chains.
Practical implications
Structured support plans and greater approximation with franchisees seem to be alternatives for this perception of value to be increased in micro-franchise chains. The attractiveness of a micro-franchise chain can be enhanced if the franchisor is able to show to its potential micro-franchisees that it offers adequate support for its business; and also for the capture of new micro-franchisees.
Social implications
The social implications aimed at entrepreneurs with low financial expenditure. The sustainability of these businesses is highly relevant in the case of emerging markets given the high rates of unemployment and informality. Hence, micro-franchises become one of the means for micro-entrepreneurs to enter the job market.
Originality/value
When dealing with micro-franchises, there is an intensification of this scarcity of resources due to the smaller amount captured by the franchisor, as well as the lower technical level found in the franchisees. The relationship between brand value and the perceived level of support and the consequent franchise satisfaction with the chain in franchises, symbolized by brand citizenship behavior, is still little studied, and there are promising new studies, especially on the different types of franchises.
... Scholars use an array of theoretical perspectives, and combinations of them, to examine franchising. Examples of theories franchising scholars use include agency theory and resource scarcity considerations (e.g., Carney and Gedajlovic, 1991;Castrogiovanni et al., 2006b;Combs and Ketchen, 1999a). Explaining the emergence of franchising as a means of organizing (see Combs et al., 2011b;Gillis and Castrogiovanni, 2012) and describing key characteristics of the organizing process, such as the choice between company-owned and franchised units and the related ownership redirection hypothesis, are examples of issues explored by scholars using these two theories (e.g., Carney and Gedajlovic, 1991;Castrogiovanni et al., 2006b;Combs and Ketchen, 1999a). ...
... Examples of theories franchising scholars use include agency theory and resource scarcity considerations (e.g., Carney and Gedajlovic, 1991;Castrogiovanni et al., 2006b;Combs and Ketchen, 1999a). Explaining the emergence of franchising as a means of organizing (see Combs et al., 2011b;Gillis and Castrogiovanni, 2012) and describing key characteristics of the organizing process, such as the choice between company-owned and franchised units and the related ownership redirection hypothesis, are examples of issues explored by scholars using these two theories (e.g., Carney and Gedajlovic, 1991;Castrogiovanni et al., 2006b;Combs and Ketchen, 1999a). Scholars also use property rights theory to explain ownership redirection in franchising (Windsperger and Dant, 2006) and the emergence of multi-unit franchising (Hussain and Windsperger, 2013). ...
Drawing from resource-based theory, we argue that family firm franchisors behave and perform differently compared to non-family firm franchisors. Our theorizing suggests that compared to a non-family firm franchisor, a family firm franchisor cultivates stronger relationships with franchisees and provides them with more training. Yet, we predict that a family firm franchisor achieves lower performance than a non-family firm franchisor. We argue, however, that this performance relationship reverses itself when family firm franchisors are older and larger. We test our hypotheses with a longitudinal dataset including a matched-pair sample of private U.S. family and non-family firm franchisors.
... Franchising businesses dominate service industries such as hotels, restaurants, and auto care. Among these, the restaurant industry is widely recognized as the torchbearer of franchising owing to the presence of prominent franchising icons such as McDonald's and Kentucky Fried Chicken (Combs and Ketchen, 1999a). ...
... It is expected that financial resources also influence the franchising proportion. Through similar measures pertaining to debt, previous studies hypothesize that having financial constraints (i.e., high debt ratio) is positively related to the franchising proportion (Combs and Ketchen, 1999a;Gonzalez-Diaz and Solis-Rodriguez, 2012). We used the debt to equity ratio (long-term debt to shareholder equity) as a proxy for financial constraints. ...
Franchising is a growth vehicle that helps firms scale their operations. Yet, the performance implications of franchising remain inconclusive. To solve this conundrum, we contend that firm-specific attributes lead to an optimal level of franchising and that the deviation from that optimal level has important firm-level consequences. Using a sample of 64 publicly listed restaurant firms that franchise in the United States, our study integrates the risk sharing perspective with resource scarcity and agency theories to show that a failure to adhere to these theoretical prescriptions can be a financially risky proposition. For restaurant firms that franchise, our results highlight the importance of maintaining an optimal mix of franchised and firm-owned outlets.
... The literature contains several important studies which relate entrepreneurial choices, characterized by the construction of groups of franchise chains (clusters of franchise chains), to performance outcomes: notably Carney and Gedajlovic (1991), Combs and Ketchen (1999), Combs, Ketchen, and Hoover (2004), and Gonzalez-Diaz and Solis-Rodriguez (2017). As Combs and Ketchen (1999) remark, clusters can be derived either inductively or theoretically. ...
... The literature contains several important studies which relate entrepreneurial choices, characterized by the construction of groups of franchise chains (clusters of franchise chains), to performance outcomes: notably Carney and Gedajlovic (1991), Combs and Ketchen (1999), Combs, Ketchen, and Hoover (2004), and Gonzalez-Diaz and Solis-Rodriguez (2017). As Combs and Ketchen (1999) remark, clusters can be derived either inductively or theoretically. We give priority to the second option, where the variables used for the clustering process are related to the background literature and hypotheses deriving therefrom. ...
In the broad empirical literature on franchising, performance outcomes of location decisions appear to be a largely forgotten issue. Yet franchising represents a rich context to study the impact of geographic entrepreneurial choices. Addressing this “blank spot” in the literature, we deal with the following question: Is it better for a chain to stay in the same geographic area, or to expand via distant franchised units? Our econometric estimations on new and unique Brazilian panel data show that spatial agglomeration of chain outlets leads to higher performance, suggesting that agglomeration gains outweigh cannibalization and spatial monopoly effects.
... Lastly, agency theory encourages information-sharing and transparency between franchisors and franchisees. By providing access to relevant and timely information, franchisors can reduce information asymmetry and foster trust, leading to improved decision-making and cooperation between the principal and agent (Combs & Ketchen Jr, 1999). ...
This empirical study aims to investigate the impact of different dimensions of franchise management strategies on franchisee performance in the professional service sector. The hypothesized relationship was supported by agency theory, which explains the situation of two parties, one representing the other in day‐to‐day transactions. The samples were 259 managers and supervisors who had worked for franchise service businesses located in Thailand and had regular contact with the franchisor of the global firm. Purposive and snowballing methods were employed to distribute questionnaires to the target respondents. The results of structural equation modeling indicated a good fit of the data to the proposed model. Hypothesis testing revealed noteworthy direct influences of four franchise management strategies, namely innovative culture, supportive service, information exchange, and recommendation, on the performance of franchisees. This study offers valuable insights into the importance of implementing effective franchise management strategies and their direct implications for franchisee performance. The findings have practical implications for franchise businesses, highlighting key areas of focus for enhancing franchisee success and overall business performance.
... A second major benefit of franchising is that it helps firms grow without any major resource outlays (Combs & Ketchen, 2003). As franchisees pay the capital necessary for investing in their own outlets, franchisers are able to actually acquire capital as opposed to diverting limited resources to that endeavor (Combs & Ketchen, 1999;Kaufman & Dant, 1996). This provides a valued source of income to the firm, as well as implies that new competent managers are brought into the firm (Oxenfeldt & Kelly, 1968). ...
... Resource scarcity theory (Oxenfeldt and Kelly, 1969) suggests that firms likely expand through franchising initially for being able to access scarce resources (e.g., capital and managerial constraints), and to expand faster (Combs and Ketchen, 1999). Franchisors sell their know-how to franchisees to obtain an economic compensation, that can be an initial fee and ongoing royalties, to reach the required economies of scale to stay in the market (Shane and Foo, 1999;Michael and Combs, 2008;Narula, 2017). ...
... On the other side of the coin, startup and crowdfunding success have commonly been measured along with funding amounts or the successful acquisition of financing. This is in line with resource theories, which posit that ventures need sufficient resources (i.e., financing) to flourish, and more resources will help in doing so (Barney, 1991;Combs and Ketchen, 1999;Dos Santos et al., 2011;Florin, 2005;Hillman et al., 2009;Kaminski et al., 2019;Rapp et al., 2018;Spiegel et al., 2015;Wernerfelt, 1984). Following the dynamic capabilities perspective, we argue that success is more than just having resources at hand. ...
... Specifically, because of the weakness of a franchise contract for transferring tacit knowledge (Paswan & Wittmann, 2009), they will use management contracts when the tacit component of the knowledge to be transferred is essential to replicate the business concept at local level. In a franchise relationship, literature sustains that the proprietary and distinctive franchisor's knowledge is slowly articulated into business practices (e.g., Barthélemy, 2008;Combs & Ketchen Jr., 1999;Windsperger & Gorovaia, 2011) that are subsequently conveyed to the franchisee through operation manuals and initial training (Paswan & Wittmann, 2009). This transfer of knowledge (mostly explicit) is between independent firms and is therefore more costly than if it were within the same company, as argued above. ...
Although franchise and management contracts constitute the dominant way of organizing business-to-business relationships within hotel chains, no study has compared their relative performance. This paper aims to explain their differences and assess their impact on online scores, currently a key performance indicator in the hotel industry. We argue that franchises are less effective than management contracts for operating upscale hotels due to the relative advantages that the latter have in transferring and enforcing tacit knowledge, typically embedded in skilled staff and very relevant in such quality-tier hotels. Conversely, franchising is better for large hotels because, first, its incentive structure better addresses managerial shirking (typically more severe as hotel size increases) and, second, it offers advantages when the standardization of business procedures is key to success (as is true for large establishments). Our empirical findings broadly support these arguments in a dataset of 467 Spanish hotels, also providing evidence that no single organizational solution fits all situations.
... The majority debate that franchising is "of course" an entrepreneurial venture form of business (Hoy & Shane, 1998) with an obvious connection between the two because franchisees "do almost all functions as other entrepreneurs" (Ketchen, Short, & Combs, 2011, p. 585-586); the argument continues, stating that the very act of creating a franchise network is an entrepreneurial act (Hoy & Shane, 1998). However, entrepreneurship presents no separation of business ownership and control (Combs and Ketchen, 1999), and entrepreneurs have direct control over the financial risk of their business (Gonzalez-Diaz & Solis-Rodriguez, 2012). Conversely, financial risk is shared risk in franchising. ...
A franchise development executive has the role of delivering evidence of the brand's value in their communication with the franchisee candidate, which is done via emails and personal communication throughout the sales process. Therefore, the person creating the marketing communication must understand what is at stake for the brand, and the pressure to produce marketing materials to know which rhetoric to use in the marketing communication materials is critical. In forming the franchisor-franchisee relationship, the strategic use of verbiage, or rhetoric, to convey a brand's organizational identity and value is met with the desire to adequately progress a franchisee candidate through the sales process. With the average sales process being eight weeks long, there is little time to capitalize on the opportunity to sell the brand appropriately, especially in the competitive environment of franchising where market, entrepreneurial, and charismatic leadership orientation are liabilities to franchise performance. This study examines the use of such rhetoric in franchise sales process email communication of top-performing franchise brands and presents a qualitative analysis to assist practitioners in industry.
... On the other side of the coin, startup and crowdfunding success have commonly been measured along with funding amounts or the successful acquisition of financing. This is in line with resource theories, which posit that ventures need sufficient resources (i.e., financing) to flourish, and more resources will help in doing so (Barney, 1991;Combs and Ketchen, 1999;Dos Santos et al., 2011;Florin, 2005;Hillman et al., 2009;Kaminski et al., 2019;Rapp et al., 2018;Spiegel et al., 2015;Wernerfelt, 1984). Following the dynamic capabilities perspective, we argue that success is more than just having resources at hand. ...
Crowdfunding has become a viable alternative to traditional venture capital and business angel funding. However, new ventures are prone to failure despite exceeding their funding goals. Extant literature presents broad knowledge of the antecedents of crowdfunding success but lacks insights into the causes and consequences of entrepreneurial failure, especially failure after massive overfunding via crowdfunding. We use a qualitative narrative approach to investigate how massive overfunding in crowdfunding threatens entrepreneurial activities. We present our findings as a taxonomy of the causes of failure, at the environmental, firm, and individual levels, based on actual cases that failed after receiving massive overfunding. Our framework challenges established thinking on resources and financing as measures of entrepreneurial success by providing insights into the processes leading to failure despite availability of resources. This serves as a reference for backers aiming to safely invest via crowdfunding and for startups to avoid the common pitfalls of overfunding.
... Commentators have highlighted the potency of autonomy, as well as the liberal ideal to which autonomy is strongly attached, that draws people toward forms of business ownership such as franchising (Croson & Minniti, 2012;Moisander et al., 2018). Within franchise research, economists have focused especially on the role of financial investment, and the franchise payments structure, in maintaining commitment to franchising and as a means to maximize franchisee effort (Castrogiovanni et al., 2006;Combs & Ketchen, 1999;Davies et al., 2011;Lafontaine, 1992). We do not refute these reasons yet we believe that they should be supplemented through an understanding of the psychological investment in constructing oneself around autonomy and the idea of "living the dream" as well as recognition of the role of lack in securing continued effort, even when aspects of activity do not (and cannot, we would add) live up to the dream of autonomy created by the liberal ideal. ...
The notion of autonomy is widely drawn upon as a contributor to motivation, satisfaction, and performance in franchise systems, yet autonomy lacks sufficient theorization and is often treated as a black box. We thus remain ill-equipped to explore further the role of autonomy within the franchise organization and to answer questions about how autonomy is experienced, fulfilled and sustained by franchisee business owners. This paper employs a psychoanalytic lens, drawing on the work of Lacan, to offer a deeper psychologized explanation of autonomy. From this theorization, our findings provide an insight into how the quest for autonomy plays an important role in enabling the franchising format and keeping alive the dream of being your own boss, but at the same time the ongoing struggle to craft oneself as autonomous creates tensions and anxieties. The study provides an important addition to economic explanations of franchising.
... Despite being similar to a manager, it must not be forgotten that a franchisee is a businessperson who is going to put financial resources and their own manpower into managing the business. Compiling the reasons given in the literature for looking for a franchise, the four that are cited in all the studies we analyzed are: a consolidated brand; operational and administrative support; the cost of raising capital, and; the search for resources, which small companies find it difficult to manage (Combs & Ketchen, 1999;Harmon & Griffiths, 2008;Perryman & Combs, 2012Cherto et al., 2006Ribeiro et al., 2013, Roque, 2019 . When the candidate franchisee decides to purchase, they are seeking to obtain advantages by way of a business that has already been successfully tested, a brand that has already been constructed, and the assistance they can expect from the franchising company. ...
The objective of this theoretical essay was to construct a model of those factors that might at any time have an influence on the operation of a franchise unit. In order to do so, we studied and assessed articles and books between 2014 and 2019 that contain aspects related to franchise operations; they were compiled in a way that had not hitherto been addressed by seminal authors. We analyzed 191 works, of which 71 form part of this study. Preparation of the model is relevant for stimulating conceptual discussion in this field of studies since it has not yet been clearly defined in academic literature. From choosing future franchisees to the daily operation of the unit, there are many factors that can influence the performance, survival, profitability and even the franchisee's satisfaction with their unit. The model, therefore, serves as the basis for the management actions of franchise networks in monitoring the activities of their franchise units. KEYWORDS franchising, franchise operational model, monitoring, business operation 1 FATEC-SP, Bragança Paulista, SP, Brasil.
... The results indicated that early-responding (41 firms) and late-responding (40 firms) firms were similar across team size, firm age, firm size, and industries. An ANOVA test suggested no significant mean differences between the two groups, implying that non-response bias was minimal (Combs and Ketchen, 1999). ...
To enrich the knowledge of the value of ethical leadership in a more entrepreneurial setting, we focus on technology-based young firms and theorize through the lens of CEO-TMT interface whether and how founder-CEOs’ ethical leadership influences young firms’ ambidexterity. We argue that founder-CEOs’ ethical leadership can enhance young firms’ ambidexterity in an indirect way, through promoting top management team (TMT) members’ advice-seeking behavior and team satisfaction. Data from a multi-source and time-lagged survey of founder-CEOs and all TMT members in 81 Chinese technology-based young firms supported our predictions. We discuss the theoretical and practical implications of our study to the extant research.
... The results indicated that early-responding (41 firms) and late-responding (40 firms) firms were similar across team size, firm age, firm size, and industries. An ANOVA test suggested no significant mean differences between the two groups, implying that non-response bias was minimal (Combs and Ketchen, 1999). ...
... Following the procedures used by prior researchers (e.g., Kanuk and Berenson 1975), we evaluated the potential nonresponse bias by checking differences between early and late respondents and found it to be insignificantly correlated with both the size and the age of the organization, indicating a minimal nonresponse bias concern (Combs and Ketchen 1999). In addition, we also cross-checked the final results with a sample of questionnaire surveys of R&D team leaders in those MNEs for which we found qualitatively equivalent results. ...
Current debates on organizational learning distinguish between two distinct and mutually exclusive learning modes: exploration and exploitation. This paper deals with the concept of ambidextrous routines in knowledge management (KM) initiatives. Specifically, drawing on a sample of 1468 MNEs from 24 regions in China, we find that a synergetic combination of explorative and exploitative virtual knowledge is positively associated with MNE performance. In contrast, an imbalance between explorative and exploitative virtual knowledge hurts MNE performance. Furthermore, the effect of imbalanced ambidexterity in virtual knowledge sharing is moderated by the cultural distance in the uncertainty avoidance between the R&D team and the region where the team operates. This paper elaborates on the characteristics of ambidextrous KM initiatives at the micro-level; firms use ambidextrous KM practices to create a learning context, defined by guidelines and methods rather than by a definite purpose. The clear separation of KM initiatives’ purpose and their embedded learning routines and methods enables them to be used ambidextrously. Furthermore, this analysis indicates that ambidextrous KM initiatives follow a path characterized by an increasing variety of purposes but a decreasing variety of underlying structures. Consequently, firms create a learning context that can be activated when necessary in ways required in an exploratory and/or in an exploitative mode.
... The nature of family business is characterized by some factors to survive (Arregle et al., 2007;Chirico, 2008). In the context of franchising, this type of business is a form of inter-firm cooperation between two organizations where both are entrepreneurs who shared tangible and intangible resources with the goal of increasing their business performance (Combs & Ketchen, 1999). As claimed by Tuunanen and Hyrsky (2001), the family business was one of the most related advantages for franchisees. ...
... Part of our theoretical mechanism involves investors' concerns about firms' access to capital (Hribar & Jenkins, 2004). Thus, we controlled for price-to-earnings ratio, indicating a firm's ability to raise capital in equity markets (Combs & Ketchen, 1999). Finally, we included a count variable for the number of prior financial restatements a firm had made prior to the focal financial restatement. ...
Research in signaling theory has recently begun to explore the consequences of incongruity across signals from a single source. However, attention has been directed towards the incongruity across signals along a single dimension, even though audiences evaluate firms based on signals along different dimensions. Here, we extend this theory to investigate the incongruity across signals along different dimensions. Specifically, we theorize that the salience of positive capability signals when organizational misconduct is revealed (a negative integrity signal) causes interdimensional incongruence. We argue that audiences face greater incongruity and react more negatively to misconduct by firms whose positive capability signals were more salient. Using irregular financial restatements as the negative integrity signals and alliance announcements as the positive capability signals, we find that investors react more negatively to restatements by firms whose alliance announcements were more salient. That is, firms that announced more frequently and firms that created more positive expectations from those announcements were penalized more. We also found that firm size and diversification weaken these negative effects. We contribute to research on signaling theory, organizational misconduct, and alliances.
... Second, our context's large national franchise network provides robust sample sizes and ample variance in hypothesized factors. Finally, this industry remains intimately connected to rich literature bases involving organizational forms (Kalnins & Mayer, 2004;Yin & Zajac, 2004), agency issues (Combs & Ketchen, 1999;Kalnins & Lafontaine, 2004), and compliance (Bernstein & Sheen, 2016;Davies et al., 2011;Ji & Weil, 2015;Jin & Leslie, 2009), to which we link our findings. ...
We examine the effects of a franchisee's size, distance from headquarters, and local competition on voluntary compliance with corporate brand‐building initiatives at the outlet level. Specifically, we consider compliance with a corporate social responsibility effort to solicit charitable donations at the time of retail checkout, measuring compliance performance as the amount of donations received at each outlet. Our analysis utilizes an objective, longitudinal sample of 777 franchised outlets in a national quick‐service restaurant chain. Surprisingly, we find that distance from headquarters is positively related to compliance; we relate this finding to recent, extant research on geographic distances and franchisee behaviors. We find the beneficial effects of larger, multiunit franchisees are mitigated as franchisees' geographic distances from headquarters increase; we relate these findings to horizontal agency within franchising systems. We further find that franchised outlets in more competitive markets comply less with brand‐building initiatives, even less so when part of a larger franchisee network. Our results underscore the important moderating role franchisee size plays in outlets' compliance, which we link back to extant perspectives on agency theory. Supplemental analyses consider tensions between compliance and operational efficiency, as well as effects of hypothesized factors on another mandatory form of compliance.
... In previous studies, researchers (e.g. Combs and Castrogiovanni 1994;Combs and Ketchen, 1999;Alon, 2001) have been using two popular approaches to explain the use of franchisingagency theory and resource-scarcity theory. Agency theory explains the use of franchising business model in the later years of company's life circle while resource scarcity theory explains that use of franchising business model increases in early years (Castrogiovanni, Combs, & Justis, 2006). ...
Gaining financial resources is a significant step for establishing or growing business since entrepreneurs’ funds are rarely enough. The most common way of gaining financial funds is through bank loans (from banks). Therefore, banks can play a significant role in creating franchising systems from franchisors side or starting a new venture from franchisee’s side. Some foreign banks in EU have recognized the potential franchising has for the national economy and created different financial products devoted to the development and support of franchising.
Unfortunately, this is not the case in Croatia. Thus, this paper will examine the situation in Croatian banks and their attitude toward franchising. Paper will present franchising, current financial products for franchisors and franchisees and we will look upon a case study of the franchisor in Eastern Croatia (looking for) in search for financial resources for growth in the commercial bank. Finally, we will present our findings and propose further research on this important topic.
... Rational-choice theory has been widely used in the social sciences, including the area of management studies (Combs & Ketchen Jr, 1999;Kirchgässner, 2008;Stefano, King, & Verona, 2015). Most importantly for our purposes, the rational-choice approach has been used for the study of morality in general (Gauthier, 1986;Greene, 2013;Hosmer & Chen, 2001), and in business ethics in particular (Donaldson & Dunfee, 1999;McWilliams & Siegel, 2001;Pies, Hielscher, & Beckmann, 2009;Schreck et al., 2013). ...
The Homo economicus model (HEM) is widely used in the social sciences in general and in business ethics in particular. Despite its success, the model is frequently criticized for being empirically flawed and normatively dangerous and its critics argue that it should be abandoned and replaced by more realistic models of human behavior. In response to the HEM’s critics, this paper develops a precise methodological approach that makes it possible to integrate within the HEM seemingly contradictory empirical evidence. Using the methodology we develop, we will integrate recent findings in behavioral economics and show how a rational-choice approach to behavioral ethics can illuminate the emergence, salience and persistence of morality.
... In the case of franchising, previous studies that test the capital scarcity theory of franchising also assumed a monotonic relationship between firms' internal resources and investments (see, for example, Brickley, Dark, & Weisbach, 1991;Combs & David, 1999). The capital scarcity of firms may vary across firms; so, whereas some firms adopt franchising due to capital scarcity, others may adopt franchising for different reasons. ...
Expansion through franchising could help restaurant firms solve financial constraints, but it could also make overinvestment easier for misaligned CEOs. Whereas the former topic has been extensively examined, the latter has received scant attention from researchers. The purpose of this study is to investigate whether franchising alleviates financial constraints or leads to overinvestment problems in restaurant firms. For this purpose, we analyzed and compared investment–cash flow sensitivities between constrained and unconstrained; franchising and nonfranchising; constrained, franchising and unconstrained, franchising; and constrained, nonfranchising and unconstrained, nonfranchising restaurant firms. The results show that unlike other industries, unconstrained restaurant firms depend more on cash flows for investment than constrained restaurant firms do. Although investment–cash flow sensitivity in nonfranchising restaurant firms was similar to that of firms in other industries, unconstrained restaurant firms that expand through franchising rely more on cash flows. These findings suggest that restaurant firms’ expansion through franchising is likely to increase overinvestment problems. Franchising could serve as a long-term method of financing for financially constrained firms as well as a short-term financing tool. However, unconstrained, franchising firms should distribute their excess cash flows to shareholders. Theoretical implications are discussed within the realms of the franchising, pecking order, and free cash flow theories.
... Khả năng tài chính là khả năng về vốn, tài sản của khách hàng để bảo đảm hoạt động thường xuyên và thực hiện các nghĩa vụ thanh toán (bao gồm cả nghĩa vụ thanh toán đối với khoản cho thuê tài chính đang được xem xét) (Nguyễn Khánh Trung và cộng sự, 2012). Có hai lý do quan trọng nhất để các doanh nghiệp quyết định NQTM đó là nguồn tài nguyên (tài chính, nhân lực, v.v.) hạn chế về số lượng và chất lượng (Frazer, 2003;Combs& Ketchen, 1999). Theo đó, nhà nhận quyền có thể được coi là khách hàng của nhà nhượng quyền 4 có thể thông qua hành vi, thái độ của doanh nghiệp để đo lường kết quả hoạt động. ...
Business performance of franchise outlets in food and beverage industry is influenced by many factors, including transfer, receive, relation quality and environment. This study aims to clarify which and how receive factorsinfluence the performance of franchise outlets. Using the Confirmatory Factor Analysis (CFA) and Structural Equation Modeling (SEM), the author found that the level of understanding isof great importance to receive factorsand strongly affects the performance of franchise outlets. This is a new finding in the study of franchise in food and beverage industry in South East Asia in general and in Vietnam in particular.
... O segundo é que eles possuem outros recursos que os franqueadores desejam, que podem ser financeiros e/ou gerenciais, e que são essenciais para o negócio. Apesar de ser semelhante a um gerente, não podemos esquecer que ele é um empresário (Combs & Ketchen, 1999;Harmon & Griffiths, 2008;Perryman & Combs, 2012), que vai colocar recursos financeiros e mão de obra própria para tocar o negócio. Compilando os motivos apresentados na literatura para se buscar uma franquia quatro sobressaem: Marca Consolidada; Suporte operacional e administrativo; Custo de Capitação de Capital e; Busca de Recursos, recursos esses que as pequenas empresas tem dificuldade de gerenciar, como marketing por exemplo. ...
... Finally, it is worth mentioning that as our findings show, entries via joint venture are preferred by service based business franchisors. In this sense, one can argue that the specific features of a product (composition, etc.) can be standardised and therefore, more easily replicated than when dealing with intangible assets, such as those of service based companies (Combs and Ketchen, 1999). Moreover, a chain whose business line is selling products instead of services tends to have more structured control processes and can easily show the franchisee how to carry out various aspects of the business, while controlling for compliance, managing inventory, etc. ...
Franchisors have many options when seeking to expand their business into foreign countries. Specifically, they can enter new markets via one of four different ways: 1) direct franchising; 2) master franchisor; 3) equity joint venture; 4) direct investments. This paper aims to analyse the factors that determine this entry mode decision. To achieve this goal, transaction cost theory is used to explain the entry mode choice phenomenon, by using a franchisor and host country level perspective. Additionally, a quantitative approach was applied to a sample of 43 Spanish chains operating 2,532 outlets across 62 foreign nations. The results show that foreign entry mode choice is driven by franchisor characteristics such as international experience, brand awareness, and industry type (product versus service), in conjunction with host country features including geographical distance, uncertainty avoidance, masculinity, political stability, economic development, unemployment rate and efficiency of contract enforcement.
... Finally, it is worth mentioning that as our findings show, entries via joint venture are preferred by service based business franchisors. In this sense, one can argue that the specific features of a product (composition, etc.) can be standardised and therefore, more easily replicated than when dealing with intangible assets, such as those of service based companies (Combs and Ketchen, 1999). Moreover, a chain whose business line is selling products instead of services tends to have more structured control processes and can easily show the franchisee how to carry out various aspects of the business, while controlling for compliance, managing inventory, etc. ...
Franchisors have many options when seeking to expand their business into foreign countries. Specifically, they can enter new markets via one of four different ways: 1) direct franchising; 2) master franchisor; 3) equity joint venture; 4) direct investments. This paper aims to analyse the factors that determine this entry mode decision. To achieve this goal, transaction cost theory is used to explain the entry mode choice phenomenon, by using a franchisor and host country level perspective. Additionally, a quantitative approach was applied to a sample of 43 Spanish chains operating 2,532 outlets across 62 foreign nations. The results show that foreign entry mode choice is driven by franchisor characteristics such as international experience, brand awareness, and industry type (product versus service), in conjunction with host country features including geographical distance, uncertainty avoidance, masculinity, political stability, economic development, unemployment rate and efficiency of contract enforcement.
Çalışmanın konusunu, sosyal girişimleri büyütmek ve ölçeklendirmek için bir yöntem olan sosyal franchising sistemi oluşturmaktadır. Bu doğrultuda çalışmanın amacı, sosyal girişimleri ve sosyal franchising’i açıklamaya ve anlamaya yönelik bir değerlendirme sunarak sosyal franchising konusundaki bilgileri derinleştirmeye yardımcı olmaktır. Bu bağlamda öncelikle, sosyal girişimcilik kavramı tanımlanmıştır. Daha sonra sosyal franchising kavramı tanımlanarak sosyal franchising ile ticari franchising arasındaki benzerlik ve farklılıklar ele alınmış, sosyal girişimlerin sosyal franchising sistemi içerisinde yer almalarının sağlayacağı avantajlar belirtilmiştir. Çalışmada son olarak, kavramın teorik açıdan daha iyi anlaşılması adına sosyal franchising’i açıklamaya yönelik teorilere yer verilmiştir. Söz konusu teoriler Kaynak Kıtlığı Teorisi, Vekalet Teorisi ve Sosyal Sermaye Teorisidir. Bu doğrultuda sosyal franchising kavramı, belirtilen teoriler ışığında incelenmiş, her bir teorinin sosyal franchising kavramını ne ölçüde açıkladığı ortaya konulmaya çalışılmıştır. Çalışmanın, sosyal franchisingle ilgili kavramsal bir çerçeve sunarak alan yazına, sosyal girişimlerin ve sosyal franchising’in karşı karşıya olduğu finansal ve sürdürülebilirlik konularındaki kısıtlılıkları açıklamak ve bu kısıtlılıkların üstesinden gelmek için yapılması gerekenler noktasında rehberlik ederek de uygulayıcılara katkı sunması beklenmektedir.
Within MNCs’ foreign subsidiaries financial slack, i.e., uncommitted financial resources in excess of those needed for current operations, may incur costs for headquarters. These costs may emanate from subsidiaries' decision to forego investment opportunities and stockpile cash instead, which, in turn, may lead to fewer resources being available for redistribution within the organization. From an agency theory perspective, headquarters can minimize these costs through monitoring mechanisms. While agency theory is considered theoretically appropriate for the study of the headquarters-subsidiary relationship, it reflects a rather undersocialized manifestation of human behaviour, which in turn limits its applicability. In this paper, we attempt to address this limitation by suggesting and empirically exploring that the effect of monitoring mechanisms is dependent (1) on the different types of monitoring used, and (2) on subsidiaries' external embeddedness. Drawing on empirical evidence from 94 subsidiaries of foreign multinationals operating in Greece, we provide some initial evidence on the differential impact of monitoring through expatriates and monitoring through bureaucratic processes. Most importantly, we show that subsidiaries' structural embeddedness moderates both associations. In doing so, we reveal that whether subsidiaries behave opportunistically or as good citizens is partially determined by the social context in which they are embedded. An unexpected finding concerns the positive effect of the origin of the CEO on subsidiaries' financial slack for expatriates compared to local managers. This finding underscores the importance of the CEO identity, and highlights the need for future research exploring its effect on subsidiaries' performance.
Purpose
Contemporary supply chain relationships inherently rely on delegation of work between organizations and, thus, are subject to agency problems for which a wide range of governance mechanisms exist. This review of agency theory (AT), across four distinct fields, explains the connection between governance mechanisms and supply chain relationship types.
Design/methodology/approach
The study uses a systematic literature review (SLR) of articles using AT in a supply chain context from the operations and supply chain management, general management, marketing, and economics fields.
Findings
The authors categorize the governance mechanisms identified to create a typology of agency relationships in supply chains.
Research limitations/implications
The developed typology provides parsimonious theory on different forms of supply chain agency relationships and takes a step towards a “supply chain-oriented agency theory” explaining and predicting relationship types and governance in supply chains. Furthermore, a future research agenda calls for more accurate measuring of agency costs, to examine residual gains alongside residual losses, to take a dual-sided perspective of agency relations and to adopt AT to examine more complex supply networks.
Practical implications
The review provides a menu of governance mechanisms and describes situations under which these mechanisms could be deployed to guide managers when developing their supply chain relationships.
Originality/value
The first review to combine and elaborate views from four major disciplines using AT as a lens to supply chain relationships. Expanding the traditional set of governance mechanisms provides academics and practitioners with a bigger “menu” of options to consider.
This study aims to address strategic and contractual dynamics of franchising, in consideration of arguments of transaction cost theory and agency theory. By using pooled cross-sectional data on a sample of Spanish food and beverage franchise systems of year 2021, gathered from Guia de Franquicias manual, exploratory analyses on the effect of franchisors’ age and total size on their proportion of franchised units are conducted as a first step. Furthermore, the effects of characteristics of a franchise system - its age, total size, origin country and proportion of franchised units, on its franchising contract’s financial determinants – level of initial investment, entry fee, royalty rate and advertising rate, are hypothesized and analyzed. Proportion of franchised units’ correlations with both age and total size characteristics are found to be inverse U-shaped. By applying multiple regression method, it is shown that none of franchising characteristics, age, total size, being foreign and its proportion of franchised units, play a significant role on level of entry fees and royalty rates, but their effects on initial investment level and advertising rates are significant, except total size.
Currently, there is a trend in the world community to form partnerships focused on cooperation between various business structures which are aimed at achieving a synergistic effect in the fulfillment of common economic interests. Modern business partnerships can be implemented in a variety of forms by using specific methods and approaches. At the same time, it has been noted that business partnerships are subject to transformation under the influence of the emergence of new technologies, methods and tools, one of which is the franchising system of relations. Taking into account the existing international experience of using franchising as an effective tool for building partnerships, further research is needed to more accurately define, systematize and quantify the strategic advantages that participants receive when forming business partnerships in modern conditions. The purpose of the paper is to identify and summarize the strategic advantages received by participants in the formation of business partnerships based on the franchising system of relations. Historical and bibliographic methods have been used to substantiate the theoretical provisions of the article. The applied part of the article is implemented with the use of modern electronic services that allow assessing the effectiveness of using the franchise system. This article examines possible forms of business partnerships, indicating specific examples of companies from Russian and foreign practice (IKEA, Tesla Motors, ACI Plastics, Sibur, Arya Home, METRO and others); a comparative analysis of the application of franchising in Russia and a number of leading foreign countries (the USA, the UK, France, Germany, Japan, etc.) has been carried out. The article presents the calculated characteristics of the project efficiency of a business partnership on the example of the Russian franchise «PIONER AUTO». The results presented in the paper show that the purchase of the abovementioned franchise will pay off in 1.5 years with further profit. The authors highlight the current trends in the development of global franchising in the context of the coronavirus pandemic in 2020 and highlight the main trends in 2021. According to the conducted research, the authors propose a model of franchising business partnership, systematize possible benefits of participants in a franchise business partnership on the basis of an earlier assessment of the possible effect.
This study examines whether franchisees are less likely to default on loans compared to counterpart independent SMEs. Findings from analyses of SME loan defaults between 2001 and 2015 suggest that franchisees, young and old, were just as likely to default than non-franchisee counterparts. The likelihood of loan default is higher for franchisees than for non-franchisees for those with high debt burdens. While default rates vary by sector, these findings are robust to sector-specific estimations and alternative time horizons of default. Findings suggest that the benefits of the franchising model, such as new firms acquiring the franchisors’ brand name, do not necessarily lead to lower default rates for franchisees. Overall, this study finds evidence questioning the proposition that franchising is a relatively less risky form of business organization for prospective entrepreneurs.
This study examines the methods of entry of Brazilian franchises during the decision of internationalization of operations. Based on a multi-case study in 2012, face-to-face interviews were conducted with 21 internationalized franchise chains. The results suggest that Brazilian franchise chains have modified the method of entry into international markets in recent years. The predominant strategy from 2008 was franchising activities from Brazil. The role of the foreign agent has been essential to lead the Brazilian franching brand abroad.
The hospitality industry is regarded as one of the most affected by the consequences of COVID-19 pandemic, and the undefined persistence of the pandemic duration raises anxiety about the ability to recover from this dramatic situation. In this regard, the purpose of this exploratory study is to shed light on the COVID-19 risk preparedness of hospitality businesses, as driven by the financial slack holdings and persistence. The empirical findings confirm that their financial-slack-driven risk preparedness should be judged as relatively low. A majority of the examined hospitality businesses demonstrated low or insufficient financial slack holdings and recently have consumed their financial slack resources. Thus, the abilities of hospitality businesses to sustain the liquidity tensions that emerged after the COVID-19 outbreak are questionable. Facing this evidence, we draw conclusions about the necessary design of system interventions that could prevent bankruptcy in the hospitality industry.
In this study, we examine the role of founders' need to belong and tertius iungens orientation (i.e., the tendency of bringing people together and coordinating among others) in the context of new ventures. We propose and document evidence that a founder's tendency to engage in tertius iungens oriented networking is positively associated with new venture performance. We also reveal that a founder's need to belong is a significant motivational antecedent of the founder's tertius iungens orientation. Further, the need to belong–networking orientation linkage is stronger for founders in new ventures at the early product development stage than those at the late product development stage. We tested our hypotheses using survey data collected with a two‐wave sample of new ventures in China. We discuss the theoretical significance of studying the need to belong and tertius iungens orientation for social networks and entrepreneurship literatures, as well as the practical implications for managing a successful new venture.
Capital investments are referred as a critical managerial decision on firm's fixed asset for generating profitability. However, the empirical finding shows that not every capital investment has a significant positive effect on profitability. Literature indicates mixed results of examining the capital investment relationship with firm's profitability, which vary in respects to the debt structure. On the other hand, strong government reinforcement has pushed Malaysia up as one of the top ten countries with robust private capital investment in the year 2004. Since the capital investments are typically irreversible and hypothesized as profit’s generator, the first aim of this study is to examine the effect of the capital investment on the firm's profitability across firms and sectors. The second aim is to examine the moderating effect of capital structure on the relationship between capital investment and profitability across firms and sectors. This study utilized pooled ordinary least squares and fixed effect analysis across 708 non-financial Malaysian listed firms. The unbalanced datasets for the period 2001 to 2015 were employed to check the robustness of these results. This study suggested that capital investment has strong significant positive effect on profitability measurements across Malaysian listed firms in non-financial sectors. On the other hand, the significant negative moderating effect of capital structure on the relationship between capital investment and return on capital across Malaysian listed firms reflected the perspective of empire building theory. In addition, the independent sample test engaged across sectors affirmed that moderating effect of capital structure are different across sectors. Thus, this study concluded the existence of moderating effect of capital structure on the relationship between capital investment and profitability. This study addressed the knowledge gap on the moderating effect of capital structure based on empire building theory
Franchising is usually approached in economics literature as a search for the reasoning behind an organization’s decision to opt for this model. In light of this situation, this study aims to find whether the current economics literature is capable of taking the next step from the origins of the franchising network and explaining three patterns of franchise operations: growth of network, quality of network and franchisee satisfaction with the franchisor. The method utilized in this study is descriptive explanatory, with the use of multiple linear regressions for the data analysis, which allows for the analysis of the relationship between independent and dependent variables. Secondary data were used from the Brazilian Franchising Association, from which the independent variables were taken, and from the Franchise Guide Journal of the Small Companies & Big Business Journal, from which the dependent variables were taken. These two sources are reliable authorities on the subject in the Brazilian market, and their complementary, mutual use for this research enhances the reliability of the database. The findings suggest that franchising in economics literature is not robust enough to explain growth and quality of networks, as well as franchisee–franchisor satisfaction, and it is suggested that the current theory needs to be further developed in order to take further steps in the concept of franchising.
The papers published in these proceedings are presented in the Third International Seminar on Maintenance, Condition Monitoring and Diagnostics, to be arranged in Oulu, Finland, in 29th – 30th September, 2010. Arranged by the University of Oulu and POHTO – The Institute for Management and Technological Training, the present seminar is supported by a variety of Finnish industrial enterprises.
The Homo economicus model (HEM) is widely used in the social sciences in general and in business ethics in particular. Despite its success, the model is frequently criticized for being empirically flawed and normatively dangerous, and its critics argue that it should be abandoned and replaced by more realistic models of human behavior. In response to the HEM’s critics, this paper develops a precise methodological approach that makes it possible to integrate within the HEM seemingly contradictory empirical evidence. Using the methodology we develop, we will integrate recent findings in behavioral economics and show how a rational-choice approach to behavioral ethics can illuminate the emergence, salience and persistence of morality.
We test the inefficient risk-bearing hypothesis—that third-party loan guarantors bear a higher risk on loans to franchisees than on loans to independent businesses—by assessing whether franchisees default more than independent businesses on third-party guarantee loans. In a sample of 428,233 SBA 7(a) loans disbursed between 2000 and 2016, franchisee loans, compared to independent business loans, with a higher percentage of the loan guarantee or made 1 to 2 years before a recession have a higher likelihood of default. The findings imply a distinctive loan default risk profile for franchisee loans.
Prior interactions between partners had led authors to emphasize the importance of relational contracting in interfirm relationships. We discern two learning effects from prior interactions (about the partner and about the transaction) to show that formal contracting is ubiquitous in franchising. Using a sample of 74 contracts from SME Spanish franchises, our results indicate that experienced franchisors complete their contracts more, always introducing more contingencies, even those relating to their own obligations. Furthermore, franchisor’s reputation does not only not reduce the degree of completeness regarding the franchisor’s obligations but also increases the franchisees’ obligations. These findings suggest, first, that franchisors prefer formal contracting because it is feasible and affordable for them and signals their commitment to the chain in a more credible way and, second, that formal and relational contracting do not seem to work as substitutes. We conclude that formalization is always necessary to enforce franchise agreements, regardless of relational contracting.
As redes de franquias brasileiras estão entre as empresas que cada vez mais buscam mercados internacionais e exportam produtos e conceitos. Entre 2000-2012, o crescimento das redes de franquias que se internacionalizaram foi de 486%. Este estudo teve por objetivo analisar as motivações para a internacionalização das redes de franquias; o processo de preparação para atuar no exterior e, finalmente, avaliar se ocorreu algum ganho para a rede nesse processo. Como metodologia partiu-se de um estudo multicasos de caráter qualitativo. No ano de 2012, foram entrevistados de forma presencial executivos de 21 redes de franquias brasileiras com operações no exterior, que se somou à análise de documentos secundários relativos ao tema. Como achados, observou-se que um agente externo às empresas geralmente desencadeia o processo o que acaba mudando a estratégia das franqueadoras. A cultura da internacionalização não encontra-se arraigada nessas empresas. A falta de preparação e pouco ou nenhum conhecimento em negócios internacionais acabaram levando as redes a repensarem sua postura nesse novo mercado e houve um alto grau de adaptação dos produtos após as unidades estarem abertas. Também observou-se um ganho de aprendizagem decorrente do processo.
This paper reviews recent research on franchising and capital structure. Several key variables that affect capital costs and are common to franchised businesses are identified. The question whether or not franchising exists because franchisees provide capital that has no close substitutes for pioneering entrepreneurs is explored and criticized because alternatives to franchisees' funds are readily available and not used by franchisers. The role of franchisee financing is also examined as a key feature of capital structure in these types of industries.
The 1993 Special Research Forum on Configurations is dedicated to the proposition that configurational theory and research can significantly advance understanding of people, groups, and organizations. In this introductory essay, we define configurational approaches to organizational analysis, trace the history of configurational thinking, distinguish the contingency approach from the configurational approach, and highlight key contributions of the five empirical articles that make up the special research forum. Most of these articles report research conducted at the organizational level of analysis, but we argue that the configurational perspective has unrealized potential at other levels as well and suggest some configurational approaches to revitalizing theory and research at the individual and group levels.
This study's argument is that adoption of a multidivisional, or M-form, organizational structure is linked to increases in a firm's levels of dis-cretionary cash. I developed this proposition hy assessing the advantages of the M-form as an instrument for directing cash, a fully fungible corporate resource, to alternative uses. Event history analysis was used to model the diffusion of the M-form through a group of electric utilities. Results show that the hypothesized relationship holds, even when the effects of firm size, levels of diversification and vertical integration, and possihie imitation effects are controlled.
A procedure was tested for the construction of evaluative rating scales anchored by examples of expected behavior. Expectations, based on having observed similar behavior, were used to permit rating in a variety of situations without sacrifice of specificity. Examples, submitted by head nurses as illustrations of nurses' behavior related to a given dimension were retained only if reallocated to that dimension by other head nurses, and then scaled as to desirability. Agreement for a number of examples was high, and scale reliabilities ranged above .97. Similar content validity should be obtained in other rating situations. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
An important aspect of any scientific investigation involves classifying the phenomena being studied. This research focused on a taxonomic analysis of the limited domain of competitive retailing strategies employed by U.S. supermarket chains for generic brand grocery products. Using cluster analysis, an empirically derived taxonomy was developed, and the characteristics of firms in each of the four strategic groups were examined. In addition, the performance of particular strategic groups was analysed. Firms in one of the strategic groups (aggressive initiators) consistently indicated higher levels of success.
This paper investigates the mix of franchised and company-owned outlets among franchise chains. Hypotheses are formulated about the proportion of franchised outlets and are tested using firm-level data from a national survey of franchisors. Empirical results support the hypothesis that company-owned outlets serve as a way for the franchisor to give itself an incentive to maintain system quality.
Previous studies in organizational economics and international business research have not tested a property rights view on the allocation of decision rights (DR) in joint ventures (JVs). The paper offers a test of the property rights explanation by using data from Hungarian JVs. Our analysis derives the following hypothesis: The more important the JV partner's intangible knowledge assets for the generation of residual surplus, the more residual DR are assigned to him. Copyright � 2009 John Wiley & Sons, Ltd.
This study investigated the strategic "sensemaking" processes of scanning, interpretation, and action and how those activities are linked to organizational performance. Using path analyses on data from 156 hospitals, we tested the direct and indirect effects among these sensemaking processes and performance outcomes and developed a model of their relationships. In a more general sense, the research represents an attempt to provide insight not only into relationships between cognition and action, but also into the links between those fundamental processes and organizational performance outcomes.
A review of empirical studies concerned with increasing response rates to mail questionnaires reveals the limited evidence upon which most widely accepted techniques are based. The only techniques which seem to be consistently effective in increasing response rates are followup letters and monetary incentives enclosed with the mail questionnaires.
This paper reports three things. First, we suggest a conceptualization of slack which incorporates an "ease-of-recovery" dimension. Second, we provide and empirical measure of organizational slack using the financial indicators suggested by Bourgeois (1981). Third, we test hypotheses relating slack to certain strategic and political behaviors within top management teams.
This exploratory study of 57 large bankruptcies and 57 matched survivors examined the dynamics of major corporate failure. Prior research was used to guide selection of the four major constructs studied: domain initiative, environmental carrying capacity, slack, and performance. What emerges is a clear portrayal of a protracted process of decline, aptly portrayed by prior theorists, and modeled here, as a downward spiral. In the firms studied, significant features of the downward spiral included early weaknesses in slack and performance, extreme and vacillating strategic actions, and abrupt environmental decline. An elaboration of the last two stages of decline is also presented, based on the findings from this study. The down-ward-spiral model is then illustrated with a case example. The study sheds light on major debates and dilemmas in the fields of organization theory and strategy regarding why major firms fail.
This article uses data from a field study of five large U.S. restaurant chains to model how chains use a plural form - simultaneous use of company and franchise units - to maintain uniformity and achieve systemwide adaptation to changing markets. From interview and observational data, I identify organizational structure, control systems, career paths, and strategy-making processes as four means through which the combination of company and franchise units helps chains achieve their objectives. The paper shows how the control and innovation processes provided by this plural form ameliorate some of the weaknesses and leverage some of the strengths of the company and franchise arrangements, enhancing the performance of the chain overall.
DR RAJIV P. DANT IS AN ASSISTANT professor of marketing at the School of Management, Boston University, United States of America. His current research interests include distribution channels and franchising, research methodology, and macro/ international issues. Several theoretical arguments have been proposed in the literature about why successful businesses might choose the franchising route to growth and expansion over other competing alternatives. However, empirical verification of these explanations is virtually non-existent. This paper describes the results of three studies aimed at garnering evidence on this topic. Results indicate that economic as well as idiosyncratic motivations drive the franchising choice. Important differences are uncovered in the concerns and expectation sets of founders of franchise systems and professional managers. Data also provide some initial evidence on two important but yet untested arguments about the payoffs of franchising as proposed by Rubin (1978) and Norton (1988)
Agency theory is an important, yet controversial, theory. This paper reviews agency theory, its contributions to organization theory, and the extant empirical work and develops testable propositions. The conclusions are that agency theory (a) offers unique insight into in- formation systems, outcome uncertainty, incentives, and risk and (b) is an empirically valid perspective, particularly when coupled with complementary perspectives. The principal recommendation is to in- corporate an agency perspective in studies of the many problems having a cooperative structure. One day Deng Xiaoping decided to take his grandson to visit Mao. "Call me granduncle," Mao offered warmly. "Oh, I certainly couldn't do that, Chairman Mao," the awe-struck child replied. "Why don't you give him an apple?" suggested Deng. No sooner had Mao done so than the boy happily chirped, "Oh thank you, Granduncle." "You see," said Deng, "what in- centives can achieve." ("Capitalism," 1984, p. 62)
The ownership strategies of 128 retail franchising systems are examined in the light of existing agency and resource scarcity explanations of this organizational form. Findings suggest that franchiser ownership strategies are more heterogeneous than previously recognized, and that neither explanation, alone accounts for observed ownership patterns. A path model of franchiser ownership patterns embodying agency and resource scarcity elements is developed that is consistent with empirical findings.
This paper provides an explanation of franchising's fee structure, drawing on principal agency and labor economics theory. The predictive framework includes constructs such as channel control, franchisor services, franchisee risk and the franchisor's capital constraints. The empirical investigation of a representative sample of franchise chains indicates that channel control is the major factor influencing the payment design. The results are used to test managerial implications about the use of an optimal fee structure in the growth of chains.
Recent empirical work has supported the Penrose-Teece view that firms diversify to exploit fully specific assets or capabilities. Where transactions costs permit, these economies of scope may be realized via input supply contracts among producers. However, asset specificities frequently create transactions costs which discourage market contracting and leave firms with a choice between collaborative ventures and wholly-owned new entry. This research uses the natural experiment of financial services deregulation to explore the collaborative-own entry choice for 292 new entries in 13 financial product markets. The results generally support our maintained hypotheses that specificity encourages full ownership while collaboration is used to ease a resource constraint.
The paper explores the usefulness of analysing firms from the resource side rather than from the product side. In analogy to entry barriers and growth-share matrices, the concepts of resource position barrier and resource-product matrices are suggested. These tools are then used to highlight the new strategic options which naturally emerge from the resource perspective.
Strategic group theory has become a popular tool for analyzing competitive structure of industries. Indeed, testing for the existence of strategic groups, and the impact of strategic groups on a firm's performance, has become one of the dominant areas of empirical research in the strategic management literature. Unfortunately, the impact of this stream of research will be limited until some fundamental assertions in strategic groups theory are tested. Two of these assertions are: (1) that strategic groups exist and (2) that a firm's performance depends upon strategic group membership. These key assertions in strategic group theory remain untested for a variety of theoretical and empirical reasons. What needs to be done to test these assertions is discussed. Until these tests are complete, the contribution of the strategic groups concept will be unclear. If these tests do not build credibility for the concept of strategic groups, it may be necessary to abandon this concept and develop models where the strategically relevant attributes of firms are those that are idiosyncratic.
The paper examines the acquisition, depreciation and transfer of knowledge acquired through learning by doing in service organizations. The analysis is based on weekly data collected over a one and a half year period from 36 pizza stores located in Southwestern Pennsylvania. The 36 stores, which are franchised from the same corporation, are owned by 10 different franchisees. We find evidence of learning in these service organizations: as the organizations gain experience in production, the unit cost of production declines significantly. Knowledge acquired through learning by doing is found to depreciate rapidly in these organizations. Knowledge acquired through learning by doing is found to depreciate rapidly in these organizations. Knowledge is found to transfer across stores owned by the same franchisee but not across stores owned by different franchisees. Theoretical and practical implications of the work are discussed.
Two sets of competing theories have been proposed to explain the existence of franchising; one set based on resource constraints and another on incentives issues. As individual franchise systems mature, these theories predict different patterns in the evolution of the mix of franchised and company-owned outlets. In this paper, we report the results of an empirical study of franchise system evolution. The findings generally support the incentives-based rationale for franchising, but they also support a modified resource constraint theory, one which recognizes the synergistic effects of dual distribution.
We examine companies that franchise some units and centrally operate (‘own’) others. The agency problems confronting these two organizational forms are analyzed. Testable hypotheses are developed. The empirical results support the notion that owning versus franchising reflects a trade-off among agency-related problems. The cost of monitoring store managers appears to be especially important in the own/franchise decision. The level of repeat business and initial investment requirements per unit also appear to be important.
I. Introduction, 488. — II. The model with automobiles as an example, 489. — III. Examples and applications, 492. — IV. Counteracting
institutions, 499. — V. Conclusion, 500.
Previous studies in organizational economics and international business research have not tested a property rights view on the allocation of decision rights (DR) in joint ventures (JVs). The paper offers a test of the property rights explanation by using data from Hungarian JVs. Our analysis derives the following hypothesis: The more important the JV partner's intangible knowledge assets for the generation of residual surplus, the more residual DR are assigned to him. Copyright � 2009 John Wiley & Sons, Ltd.
This article provides an empirical assessment of various agency-theoretic explanations for franchising, including risk sharing, one-sided moral hazard, and two-sided moral hazard. The empirical models use proxies for factors such as risk, moral hazard, and franchisors' need for capital to explain both franchisors' decisions about the terms of their contracts (royalty rates and up-front franchise fees) and the extent to which they use franchising. In this article, I exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the United States in 1986. The data are most consistent with a model based on two-sided moral hazard. The empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts. Finally, contrary to the predictions of several theoretical models, I find that royalty rates and franchise fees are not negatively related.
This study challenges the common assumption that retrospective accounts of business strategy are reliable and valid. Chief executives reported their firms' current strategies, and two years later, they reported their firms' strategies of two years earlier. Of these retrospective accounts, 58 percent did not agree with the previous and validated reports of past strategy. Retrospective errors appear to occur systematically and may be attributable to faulty memory or to attempts to cast past behaviors in a positive light.
Previous studies in organizational economics and international business research have not tested a property rights view on the allocation of decision rights (DR) in joint ventures (JVs). The paper offers a test of the property rights explanation by using data from Hungarian JVs. Our analysis derives the following hypothesis: The more important the JV partner's intangible knowledge assets for the generation of residual surplus, the more residual DR are assigned to him. Copyright � 2009 John Wiley & Sons, Ltd.
- Miller D.
- Fama E. F.
- Jensen M. C.
- Shane S. A.