Vertical integration in Franchise systems: Agency theory and resource explanations

Abstract

c T-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.

Strategic group identification using evolutionary computation

“…It is characterized by a high value of all the loadings and it can be resembled to the ''expensive" group identified by Carney and Gedajlovic (1991). The identified group has anyway some differences with respect to the one they proposed, as they are not so conservative.…”

“…Instead of using the same variables than Carney and Gedajlovic (1991) and Castrogiovanni et al, 1995 to replicate both studies, we propose to use a big set of variables as possible candidates for factor analysis. A total of 31 candidate variables have been considered, and they will be applied for strategic group identification of US franchisors included in the Entrepreneur's Franchise 500 survey, January 2005.…”

“…The third part of the fitness function measures the distance (Dist) to the typical number of factor of previous studies about strategic group identification. A distant number from 5 groups is penalized, as this is a typical value obtained en prior studies (Carney & Gedajlovic, 1991;Castrogiovanni et al, 1995). C1, C2, and C3 are coefficients used to adjust the relative importance of the three parts of the fitness function.…”

“…Two major theoretical perspectives have been proposed to explain patterns of company-ownership versus franchisee-ownership: Resource Scarcity and Agency Theory (Alon, 2001;Carney & Gedajlovic, 1991;Combs & Castrogiovanni, 1994;Combs, Ketchen, & Hoover, 2004;Michael, 2003;Newkirk & Lederer, 2006;Paik & Choi, 2007). Both theories should be analyzed, as they determine the firm characteristics that are going to drive franchisors into strategic groups.…”

“…All firms do not adopt franchising for similar reasons, but rather groups of firms share similar approaches (Carney & Gedajlovic, 1991). If strategic groups exist among firms that franchise and these groups differ in performance, examining all franchising firms as a set cannot capture the true picture of the franchising-performance relationship .…”