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A property rights view of multi-unit franchising

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Abstract

This study develops a property rights explanation of the multi-unit (MU) ownership strategy of the franchise firm. According to the property rights theory, the allocation of residual rights of control (decision and ownership rights) in franchise firms depends on the contractibility of system-specific and local market assets (LMA). We develop and test the following hypotheses: Multi-unit franchising (MUF) is positively related to the franchisor’s intangible system-specific assets and negatively to the franchisee’s intangible LMA. In addition, we argue that impact of financial assets on the tendency toward MUF depends on the contractibility of LMA. Empirical results from the German franchise sector provide partial support of the hypotheses. Compared to the agency theory, which focuses on (complete) incentive contracts that specify residual income rights between the franchisor and franchisee, property rights theory focuses on incomplete contracts that allocate residual control rights between the franchisor and network partners. Furthermore, compared to the resource scarcity theory, property rights theory explains the impact of contractibility of resources/assets on the ownership strategy of the franchise firm.

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Authors and Affiliations

  1. ESC Rennes School of Business, 2 rue Robert d’Arbrissel, 35000, Rennes, France

    Dildar Hussain

  2. Center for Business Studies, University of Vienna, Bruenner Strasse 72, 1210, Vienna, Austria

    Josef Windsperger

Authors
  1. Dildar Hussain
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  2. Josef Windsperger
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Correspondence to Dildar Hussain.

Appendix: Measures of variables

Appendix: Measures of variables

Multi-unit franchising (PropMUF) Number of franchised outlets/number of franchisees.

Annual training days (ANTD) Number of franchisee’s training days a year.

Advertising fee (ADV) Advertising fee as percentage of the sales.

Franchisee’s intangible LMA Three items; Cronbach α = 0.624): franchisee’s know-how advantage evaluated by the franchisor (no advantage 1–5 very large advantage) regarding.

  1. 1.

    Innovation

  2. 2.

    Local market knowledge

  3. 3.

    Quality control

Financial resources advantage (FIN) Franchisor’s financial resources advantage through franchising (no advantage 1–5 very large advantage).

Formal meetings (MEET) Number of formal meeting days a year.

Outlets (OUT) Total number of outlets in the franchise system (franchised + company owned).

Initial investments (INV) Sum of INV and initial fees.

Sector (SECT):1 = services firms; 0 = product franchising firms.

Age (AGE) The number of year since opening up the first outlet in Germany.

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Hussain, D., Windsperger, J. A property rights view of multi-unit franchising. Eur J Law Econ 35, 169–185 (2013). https://doi.org/10.1007/s10657-012-9366-8

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