Franchisee autonomy not only fosters system-wide adaptability and outlet owners' satisfaction but also raises the costs from agency problems present in franchiseefranchisor dyads. Advancing upon the understanding of agency issues involved in franchising, we test the argument that chains counterbalance the loss in control inherent to autonomy with relational governance mechanisms. The empirical results provided strong support for this presumption. In addition, and most notably, we found that the more relational governance becomes important, the weaker agents' incentives are aligned with the interests of the entire network. The moderating effects of five franchisee characteristics influencing goal congruencies were considered: multiunit ownership, age of the relationship, geographic distance, franchisee success, and the level of perceived intra-chain competition. Implications for chain management are provided.
Besides franchisee opportunistic behavior, franchisor moral hazard is a central concern in franchise chains. Economic literature thus far focused on the sharing of franchisee revenues as an incentive for curbing franchisor malfeasance. In this paper, we ask whether and how the obligations of chains may be enforced through institutional arrangements like franchisee councils. Consistent with expectations, the appointment of a council empirically turned out to be more likely as decision rights}a proxy for the scope of moral hazard}were increasingly allocated to companies' management. We found this relationship to be negatively moderated by the contractual share parameter.
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