Antecedents of early terminations in franchising: franchisor versus franchisee cancelations

Franchisors capitalize on franchisee entrepreneurial capacity to grow. However, enabling franchisees to develop their ventures may damage system consistency. This dilemma makes conflict particularly prevalent in the field of franchising. Nevertheless, prior research has reported an incomplete picture of factors leading to serious disagreement and premature termination in franchise partnerships. We address this gap, first, by adding the entrepreneurial autonomy of franchisees as a relevant but underexplored source of conflict and, second, by providing a more fine-grained analysis of franchisors’ versus franchisees’ drivers of termination. Specifically, we focus on the controversial issues of pricing and local advertising policies and analyze how expanding franchisees’ entrepreneurial autonomy in these decision areas is related to contract terminations depending on who ended the relationship (the franchisor or a franchisee). The study also highlights less controversial requirements and conditions (e.g., upfront investments, franchisor experience …) that may reduce early terminations. Our empirical objectives are met by using survey data from a sample of franchisor companies. The results show how the performance outcomes of entrepreneurial autonomy differ depending on the decision area in which it is exercised. Results also throw light on the consequences of various critical franchise policies that may be masked if both types of termination (franchisors vs. franchisees) are considered together.