Institutions and contracts: Franchising

Pfister, Étienne; Deffains, Bruno; Doriat-Duban, Myriam; Saussier, Stéphane

doi:10.1007/s10657-006-5671-4

Cited by 20 publications

(14 citation statements)

References 53 publications

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“…As Dant et al (2008) recently showed, the proportion of company-owned outlets is almost three times greater in France than in the United States. A potential explanation is that civil law countries such as France regulate dispute resolution more heavily than common law countries such as the United States (Pfister et al, 2006). Thus, greater reliance on company ownership may be a way for French chain operators to avoid potentially long and costly disputes with franchisees.…”

Section: Limitations and Future Researchmentioning

confidence: 99%

Agency and institutional influences on franchising decisions

Barthélémy

2011

Journal of Business Venturing

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Section: Limitations and Future Researchmentioning

confidence: 99%

Agency and institutional influences on franchising decisions

Barthélémy

2011

Journal of Business Venturing

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“…A recent study by Pfister et al (2004) demonstrated the implications of variance in legal traditions, labor regulations, and trademark protection across countries for the organization of franchise channels. It may thus well be that, across countries, the need for institutional solutions to protect franchisees falls apart and/or that differences in the legal status of such arrangements makes them more powerful in some countries than in others.…”

Section: Limitationsmentioning

confidence: 99%

Preliminary evidence on the appointment of institutional solutions to franchisor moral hazard—the case of franchisee councils

Cochet

Ehrmann

2006

Manage Decis Econ

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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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“…Clearly, the franchisor can only offer financing to his franchisees, if he has access to capital. Hence, franchisor financing is used as an additional indicator for the franchisor's access to capital (see, e.g., Lafontaine 1992;Pfister et al 2006). Minimum investment is the minimum amount the franchisee is required to invest when starting his business.…”

Section: Independent Variables Concerning Franchisor's Capital Scarcitymentioning

confidence: 99%

“…However, empirical results often suggest the opposite. Other researchers (Pfister et al 2006) predict a larger proportion franchised for older franchise systems, because franchisors expand their business by means of franchising or find it easier to franchise due to reduced costs and obstacles. For example, a business with a long tradition might signal good reputation and quality to potential franchisees.…”

Section: Control Variablesmentioning

confidence: 99%

Contractual relations and organizational structure in franchising

Rohlfing

Sturm

2011

Z Betriebswirtsch

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In this paper, we employ a new dataset based on a sample of 123 franchise systems originating from Germany to empirically test hypotheses stemming from agency theory and capital scarcity considerations on the contractual relations and the organizational structure in franchising. We include proxies for the franchisor's capital scarcity as well as for moral hazard on the franchisee's and the franchisor's side. Furthermore, we distinguish between initial and ongoing franchisor support. Our results indicate that agency models based on double moral hazard do explain the design of franchise contracts and the organizational structure in terms of the proportion of franchised outlets. We find that the incentive component of the franchise contract (the royalty rate) is not influenced by moral hazard on the franchisee's side, but rather by moral hazard on the franchisor's side. Furthermore, the proportion franchised is strongly influenced by moral hazard on the franchisee's side. Hence, after providing incentives to outlet managers by turning them into franchisees, thereby granting them residual claimancy, the royalty rate mainly serves to ensure ongoing franchisor input. The franchisor's capital scarcity influences the fixed fee in franchise contracts and the proportion of franchised outlets, thus supporting standard capital scarcity arguments.

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Institutions and contracts: Franchising

Abstract: Franchising, Institutions, Contracts, Legal systems,

Cited by 20 publications

References 53 publications

Agency and institutional influences on franchising decisions

Agency and institutional influences on franchising decisions

Preliminary evidence on the appointment of institutional solutions to franchisor moral hazard—the case of franchisee councils

Contractual relations and organizational structure in franchising

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