Contractual Design as a Determinant of Performance: Evidence from Franchising

Chaudey, Magali; Fadairo, Muriel

doi:10.1080/13571510701830556

Cited by 16 publications

(17 citation statements)

References 10 publications

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“…Thus, the focus of research has been on ensuring franchisee compliance with system procedures, rather than exploring the contract as a means of enabling entrepreneurial activity within the system. Chaudey and Fadairo (2008) found that more constrained franchise contracts improved network performance, due to reduced franchisee opportunism. Contract provisions which provide clear procedures, by which entrepreneurial behaviours on the part of franchisees will be managed within the system, could perhaps enable franchisors to obtain high levels of system compliance without thwarting franchisee entrepreneurial orientation.…”

Section: H2: Franchisor Support Will Be Positively Related To Eo In Fmentioning

confidence: 99%

Entrepreneurial orientation and the franchise system

Dada

Watson²

2013

European Journal of Marketing

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PurposeThe purpose of this paper is to understand the franchisor's perception of the role of entrepreneurial strategic orientation (EO) – innovative, risk‐taking, and proactive actions – within the special case of franchised firms, given the opposing forces for standardisation/uniformity and system innovation/adaptation.Design/methodology/approachA cross‐sectional research design, involving a mail questionnaire survey, was employed to collect data from a sample of franchisors operating in the UK. The hypotheses specified in the study were tested using a path model.FindingsThe results show that for franchise organisations, EO is positively related to performance. The recent meta‐analysis conducted by Rauch et al. also demonstrated that the correlation of EO with performance is fairly large (r=0.242). This correlation is consistent with the significant value reported in the study of 0.234. In addition, franchise system support structures were found to be important in fostering EO within the organisation.Research limitations/implicationsFuture studies may consider including other dimensions of EO, notably competitive aggressiveness and autonomy, in exploring the relevance of EO to the franchise system. It would be interesting to also use a longitudinal analysis to examine the long‐term effect of EO on the performance of franchised firms.Originality/valueThe study extends knowledge of the EO‐performance outcomes relationship to the franchising context where the role of EO is presently under‐explored. This could be attributed to the fact that the franchise concept is built on standardisation and uniformity, notions that run counter to the flexible strategies involved in fostering EO.

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Section: H2: Franchisor Support Will Be Positively Related To Eo In Fmentioning

confidence: 99%

Entrepreneurial orientation and the franchise system

Dada

Watson²

2013

European Journal of Marketing

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“…In franchising, agency theory is also used to model financial returns (Obi, 2005;Brewer, 2003); the proportion of franchising (Alon, 2001;Seshadri, 2002;Pfister et al, 2006;Castrogiovanni et al, 2006b); contractual restraints (Brickley, 1999); franchise compensation (Vázquez, 2005); power and control (Quinn & Doherty, 2000;Pizanti & Lerner, 2003;Dahlstrom et al, 2009); performance (Chaudey & Fadairo, 2008); multi-unit franchising strategies, and internationalization (Sashi & Karuppur, 2002). Agency theory portrays franchising as an organizational form that minimizes the organizational agency costs, especially the monitoring costs.…”

Section: Agency Theoretic Explanations Of International Franchisingmentioning

confidence: 99%

U.S.-Based Fast-Food Restaurants: Factors Influencing the International Expansion of Franchise Systems

Alon

2010

Journal of Marketing Channels

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Studies of international franchising are scant but increasing and can be divided into two streams of research: those focusing on environmental predictors of internationalization and those focusing on strategic, firm-level characteristics. Examining the latter category, this study empirically explores a set of firm-level attributes as predictors of decision making on whether firms seek international expansion. Using longitudinal data from Bond's Franchise Guide 2001-2008, we draw on a sample of U.S.-based fast-food franchise systems to test our hypotheses. Specifically, our database is composed of 1,058 observations of 158 chains, and we estimate a semi-parametric logistic model for international franchising. The model contributes to the literature by being the first to examine the nonlinearity of international franchising determinants using agency theory. The results show that (a) bonding, (b) the percentage of franchised units, (c) the number of states within which the system operates, and (d) the provision of area development agreements and sub-franchising significantly contribute to the international expansion of U.S.-based fast-food franchisors.

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“…Two prominent dimensions of franchising have been extensively studied. The first one is the design of the franchise contract with much of the emphasis on the level of royalty rates and franchised fees (Chaudey and Fadairo, 2008;Lafontaine, 1992;Mathewson and Winter, 1985;Vazquez, 2005;Wimmer and Garren, 1997). The second one analyzes the agency factors likely to affect the trade-off between franchising and company ownership (Brickley, 1999;Brickley and Dark, 1987;Lafontaine, 1992).…”

Section: Introductionmentioning

confidence: 99%

Monitoring Policy and Organizational Forms in Franchised Chains

Pénard

Raynaud

Saussier³

2011

International Journal of the Economics of Business

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Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers' efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.

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Contractual Design as a Determinant of Performance: Evidence from Franchising

Cited by 16 publications

References 10 publications

Entrepreneurial orientation and the franchise system

Entrepreneurial orientation and the franchise system

U.S.-Based Fast-Food Restaurants: Factors Influencing the International Expansion of Franchise Systems

Monitoring Policy and Organizational Forms in Franchised Chains

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