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The Governance Structure of Franchising Firms: A Property Rights Approach

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Economics and Management of Networks

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

Previous studies in franchising research do not explain the governance structure of franchising firms as an institutional entity that consists of two interrelated parts: Allocation of residual decision rights and transfer of ownership rights. This paper fills this gap in the literature. According to the property rights view, decision rights have to be allocated according to the distribution of intangible knowledge assets between the franchisor and franchisee and ownership rights have to be assigned according to the residual decision rights. Since ownership rights are diluted in franchising networks, the dilution of residual income rights of franchised outlets is compensated for by setting up company-owned outlets. According to the property rights view, an efficient governance structure of the franchising firm implies allocation of residual decision rights according to the distribution of intangible assets between the franchisor and the franchisee and transfer of ownership rights according to the distribution of residual decision rights. We empirically investigate the influence of intangible knowledge assets on residual decision rights by using a logistic and ordinal regression model and the relationship between residual decision and ownership rights by using a simultaneous equation model on a sample of 83 firms from the Austrian franchise sector. Three hypotheses were derived from the property rights approach and tested. The empirical results are generally supportive of the hypotheses.

Financial support was provided by the ‚Jubiläumsfonds‘ of the Austrian National Bank. I want to thank Josh Lerner (Harvard Business School) and Reinhard Grohs (University of Vienna, Center for Business Studies) for their comments.

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Authors and Affiliations

  1. Center for Business Studies, University of Vienna, Vienna

    Josef Windsperger

  2. Institute of Econometrics and Operations Research, Technical University of Vienna, Vienna

    Askin Yurdakul

Authors
  1. Josef Windsperger
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  2. Askin Yurdakul
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Editors and Affiliations

  1. IGR-IAE, University of Rennes 1, 11 rue J. Macé CS 70803, 35708, Rennes, Cedex 7, France

    Gérard Cliquet

  2. Faculty of Business and Information Technology, Department of Business and Management, University of Kuopio, Mikrokatu 1F, 70211, Kuopio, Finland

    Mika Tuunanen

  3. RSM Erasmus University, Burg.Oudlaan 50, Room T8-56, 3062 PA, Rotterdam, The Netherlands

    George Hendrikse (Chair Economics of Organization) (Chair Economics of Organization)

  4. Center of Business Studies, University of Vienna, Brünner Str. 72, 1210, Vienna, Austria

    Josef Windsperger

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Windsperger, J., Yurdakul, A. (2007). The Governance Structure of Franchising Firms: A Property Rights Approach. In: Cliquet, G., Tuunanen, M., Hendrikse, G., Windsperger, J. (eds) Economics and Management of Networks. Contributions to Management Science. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1758-4_5

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