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An Agency Perspective on Franchising

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Author Info
James A. Brickley
Frederick H. Dark
Michael S. Weisbach

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Abstract

Franchising is commonly viewed as a source of expansion capital for small companies with "limited access to capital markets". Franchising, however, is used by many large, publicly traded companies. This paper summarizes the agency-cost explanation for why firms franchise and provides related empirical tests. In particular, the study extends existing empirical work on the cross-sectional determinants of the own versus franchise decision and provides new time series evidence on the valuation effects of franchise repurchases. The results support the agency explanation for franchising and suggest that there is a cost/benefit trade-off in deciding between owning versus franchising that faces the large as well as the small company.

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Publisher Info
Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 20 (1991)
Issue (Month): 1 (Spring)
Pages:
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Handle: RePEc:fma:fmanag:brickley91

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  1. Francine Lafontaine & Kathryn L. Shaw, 1996. "The Dynamics of Franchise Contracting: Evidence from Panel Data," NBER Working Papers 5585, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Josef Windsperger & Maria Jell, 2005. "Structuring residual income and decision rights under internal governance: results from the Hungarian trucking industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(5), pages 295-305. [Downloadable!]
  3. Benito Arruñada & Luis Vázquez & Giorgio Zanarone, 2009. "Institutional constraints on organizations: the case of Spanish car dealerships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 15-26. [Downloadable!]
    Other versions:
  4. Yusong Wang & David Bell & V. Padmanabhan, 2009. "Manufacturer-owned retail stores," Marketing Letters, Springer, vol. 20(2), pages 107-124, June. [Downloadable!] (restricted)
  5. Charles Zech, 2003. "Understanding denominational structures: churches as franchise organizations," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 10(3), pages 323-335, November. [Downloadable!] (restricted)
  6. S.O. Monye, 1997. "Transaction Costs and the Internationalisation of Business Franchising," CIBS Research Papers in International Business 1-97, London South Bank University CIBS. [Downloadable!]
  7. Affuso, L., 2000. "Intra-Firm Retail Contracting: Survey Evidence from the UK'," Cambridge Working Papers in Economics 0022, Faculty of Economics, University of Cambridge. [Downloadable!]
  8. Paul H. Jensen & Robin E. Stonecash, 2005. "Contract Efficiency in the Presence of Demand and Cost Uncertainty," Melbourne Institute Working Paper Series wp2005n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  9. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  10. Hendrikse, G.W.J. & Jiang, T., 2005. "Plural Form in Franchising: An Incomplete Contracting Approach," Research Paper ERS-2005-090-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  11. Joao Carlos Correia Leitao, 2004. "Optimal Divisionalization for Selling Networks of Cable Television Services," Industrial Organization 0403004, EconWPA. [Downloadable!]
  12. Arturs Kalnins & Francine Lafontaine, 1996. "The Characteristics of Multi-Unit Ownership in Franchising: Evidence from Fast-Food Restaurants in Texas," NBER Working Papers 5859, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Manuel González & Benito Arruñada & Alberto Fernández, 1997. "La decisión de subcontratar: el caso de las empresas constructoras," Investigaciones Economicas, Fundación SEPI, vol. 21(3), pages 501-521, September. [Downloadable!]
  14. Hendrikse, G.W.J. & Jiang, T., 2007. "An Incomplete Contracting Model of Governance Structure Variety in Franchising," Research Paper ERS-2007-049-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  15. Francine Lafontaine & Kathryn L. Shaw, 2001. "Targeting Managerial Control: Evidence from Franchising," NBER Working Papers 8416, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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