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International multi-unit franchising: an agency theoretic explanation

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  • Garg, Viany K.
  • Rasheed, Abdul A.
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    Abstract

    In spite of its considerable popularity, multi-unit franchising has been considered an anomaly from an agency theory perspective. This paper addresses this anomaly by attempting a comprehensive agency theoretic explanation of international multi-unit franchising. Although past agency theoretic examinations have mostly focused on single-unit franchising, a closer examination of the international context, which is characterized by significant geographic and cultural distance between franchisors and franchisees, suggests that multi-unit franchising may be more appropriate. This paper examines several agency problems inherent in multi-unit franchising. These include: bonding, adverse selection, information flow, shirking, inefficient risk-bearing, free-riding, and quasi-rent appropriation. Consideration of each of these problems using agency theory perspective leads to the suggestion that multi-unit franchising might address agency problems better than single-unit franchising in the international context.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Business Review.

    Volume (Year): 12 (2003)
    Issue (Month): 3 (June)
    Pages: 329-348

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    Handle: RePEc:eee:iburev:v:12:y:2003:i:3:p:329-348

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    Keywords: International franchising Agency theory Multi unit franchising;

    References

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    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
    2. Kaufmann, Patrick J. & Dant, Rajiv P., 1996. "Multi-unit franchising: Growth and management issues," Journal of Business Venturing, Elsevier, vol. 11(5), pages 343-358, September.
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    8. Dant, Rajiv P. & Nasr, Nada I., 1998. "Control techniques and upward flow of information in franchising in distant markets: conceptualization and preliminary evidence," Journal of Business Venturing, Elsevier, vol. 13(1), pages 3-28, January.
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    13. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
    14. Martin, Robert E, 1988. "Franchising and Risk Management," American Economic Review, American Economic Association, vol. 78(5), pages 954-68, December.
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    Cited by:
    1. Dildar Hussain & Josef Windsperger, 2013. "A property rights view of multi-unit franchising," European Journal of Law and Economics, Springer, vol. 35(2), pages 169-185, April.

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