Franchisor–Franchisee Bankruptcy and the Efficacy of Franchisee Governance

Abstract

Franchisors’ long-term viability is tied to the ongoing operations of their franchisees. To ensure the ongoing performance of franchisees, franchisors deploy multiple governance mechanisms. This study assesses how governance mechanisms deployed to enhance franchisee ability (via selection and socialization) and motivation (via incentives and monitoring) impact franchisee bankruptcy. The authors examine the individual and joint effects of deploying governance mechanisms that share the same underlying objective, namely, to enhance franchisee ability and motivation. They also assess how motivation-inducing mechanisms may serve to counter the motivation-dampening effect of an increased royalty rate. Relying on data from multiple archival sources, the authors identify all bankruptcy filings by franchisees and their franchisors across 1,115 franchise systems over a 13-year observation window. Their findings document a positive and significant relationship between franchisee and franchisor bankruptcy. They also find main and interaction effects of the ability- and motivation-influencing governance mechanisms on the likelihood of franchisee bankruptcy, and the existence of significant bankruptcy spillovers among franchisees within the same franchise system. They discuss implications for franchise theory and management.

Unpacking the Relationship between Sales Control and Salesperson Performance: A Regulatory Fit Perspective

“…As in previous studies (Saboo et al 2017; Sridhar and Srinivasan 2012), we corrected for endogeneity bias by taking the control function approach (Petrin and Train 2010), an extension of Garen's (1984) procedure. This approach requires an exogenous variable for each learning behavior that meets the requirements of relevance (i.e., correlated with respective type of learning) and exclusion restriction (i.e., uncorrelated with the error term in performance) (Antia, Mani, and Wathne, 2017).…”

Design and Governance of Multichannel Sales Systems: Financial Performance Consequences in Business-to-Business Markets

“…Extending prior literature, we demonstrate that the same governance mechanism (e.g., formalization) can enhance manufacturer performance in one setting (e.g., aligned with indirect channel usage) but diminish manufacturer performance in the other (e.g., aligned with direct channel usage). In doing so, we also extend literature on formalization, centralization, and information exchange, which has largely investigated their performance effects in a context that differs greatly from the reality of today's multichannel sales systems (e.g., Boyle Antia, Mani, and Wathne (2017) refer to dual distribution as "monitoring." b…”

“…Second, we address calls for extending research on the design of multichannel sales systems (e.g., ISBM 2020; MSI 2018; Sa Vinhas and Johnson 2019). Prior research has examined the outcomes of moving from a single channel to multichannel settings (e.g., Dutta et al 1995), but researchers have only begun investigating design consequences within multiple sales channels (Antia, Mani, and Wathne 2017;Srinivasan 2006). We extend initial research on how design variation within a multichannel context affects both manufacturer performance and matched sales partner behavior.…”

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Relationship Governance Dynamics: The Role of Partner Selection Efforts and Mutual Investments

“…As evidenced by a large and growing body of research, this definition comprises some different phenomena, including specific governance actions or mechanisms that can be purposely deployed (Anderson and Weitz 1992) but also governance structures that emerge over time in a relationship (Heide and John 1988). For the current study, we capture the former as a supplier's initial efforts to select a reseller with particular characteristics, using purposeful qualification efforts (Antia, Mani, and Wathne 2017;. We assess the latter as the parties' mutual transaction-specific investments (Williamson 1983).…”