IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v157y2023ics0148296322010359.html
   My bibliography  Save this article

The governance implication of the geographic concentration of franchise activities for franchise relationships

Author

Listed:
  • Guo, Shiau-Ling

Abstract

While the interfirm governance literature has drawn largely upon the transaction cost perspective to investigate the determinants of contract design, the governance implications of partners’ geographic proximity have received relatively little attention. By complementing the agency theoretical lens of geographic dispersion with the economic and sociological perspectives on geographic proximity, I investigate how the geographic concentration of partner firms relates to the design of contracts. Leveraging disclosed documents and contracts on restaurant franchise chains in the U.S., I find that a greater geographic concentration of outlets is associated with less use of enforcement provisions. At the same time, the results show that the relationship between the geographic concentration of outlets and the use of coordination provisions hinges upon the intensity of multiunit ownership in franchise chains. This paper generates new insights into the governance implications of proximate partners that offer similar products or services and the antecedents of contract design.

Suggested Citation

  • Guo, Shiau-Ling, 2023. "The governance implication of the geographic concentration of franchise activities for franchise relationships," Journal of Business Research, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jbrese:v:157:y:2023:i:c:s0148296322010359
    DOI: 10.1016/j.jbusres.2022.113570
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296322010359
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2022.113570?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Malhotra, Deepak & Lumineau, Fabrice, 2011. "Trust and collaboration in the aftermath of conflict: the effects of contract structure," MPRA Paper 38358, University Library of Munich, Germany.
    2. Darr, Eric D. & Kurtzberg, Terri R., 2000. "An Investigation of Partner Similarity Dimensions on Knowledge Transfer," Organizational Behavior and Human Decision Processes, Elsevier, vol. 82(1), pages 28-44, May.
    3. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
    4. Wilbur Chung & Arturs Kalnins, 2001. "Agglomeration effects and performance: a test of the Texas lodging industry," Strategic Management Journal, Wiley Blackwell, vol. 22(10), pages 969-988, October.
    5. Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
    6. Brown, James R. & Cobb, Anthony T. & Lusch, Robert F., 2006. "The roles played by interorganizational contracts and justice in marketing channel relationships," Journal of Business Research, Elsevier, vol. 59(2), pages 166-175, February.
    7. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
    8. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 964-982, December.
    9. Nicholas Argyres & Janet Bercovitz, 2015. "Franchisee Associations as Sources of Bargaining Power? Some Evidence," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 811-832, October.
    10. Arturs Kalnins & Francine Lafontaine, 2004. "Multi-unit Ownership in Franchising: Evidence from the Fast-Food Industry in Texas," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 747-761, Winter.
    11. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
    12. Kaufmann, Patrick J. & Eroglu, Sevgin, 1999. "Standardization and adaptation in business format franchising," Journal of Business Venturing, Elsevier, vol. 14(1), pages 69-85, January.
    13. Julie Juan Li & Laura Poppo & Kevin Zheng Zhou, 2010. "Relational mechanisms, formal contracts, and local knowledge acquisition by international subsidiaries," Strategic Management Journal, Wiley Blackwell, vol. 31(4), pages 349-370, April.
    14. Dildar Hussain & Rozenn Perrigot & Karim Mignonac & Asâad El Akremi & Olivier Herrbach, 2013. "Determinants of multi-unit franchising: an organizational economics framework," Post-Print halshs-00816128, HAL.
    15. Richard L. Daft & Robert H. Lengel, 1986. "Organizational Information Requirements, Media Richness and Structural Design," Management Science, INFORMS, vol. 32(5), pages 554-571, May.
    16. Olav Sorenson & Jesper B. Sørensen, 2001. "Finding the right mix: franchising, organizational learning, and chain performance," Strategic Management Journal, Wiley Blackwell, vol. 22(6‐7), pages 713-724, June.
    17. 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.
    18. Dildar Hussain & Rozenn Perrigot & Karim Mignonac & Assâad El Akremi & Olivier Herrbach, 2013. "Determinants of Multi‐unit Franchising: An Organizational Economics Framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(3-5), pages 161-169, April.
    19. Karin Fladmoe-Lindquist & Laurent L. Jacque, 1995. "Control Modes in International Service Operations: The Propensity to Franchise," Management Science, INFORMS, vol. 41(7), pages 1238-1249, July.
    20. Joseph Pancras & S. Sriram & V. Kumar, 2012. "Empirical Investigation of Retail Expansion and Cannibalization in a Dynamic Environment," Management Science, INFORMS, vol. 58(11), pages 2001-2018, November.
    21. Kathleen M. Eisenhardt, 1985. "Control: Organizational and Economic Approaches," Management Science, INFORMS, vol. 31(2), pages 134-149, February.
    22. T. K. Das & Bing‐Sheng Teng, 1996. "Risk Types And Inter‐Firm Alliance Structures," Journal of Management Studies, Wiley Blackwell, vol. 33(6), pages 827-843, November.
    23. Ashish Arora & Michelle Gittelman & Sarah Kaplan & John Lynch & Will Mitchell & Nicolaj Siggelkow & Juan Alcácer & Minyuan Zhao, 2016. "Zooming in: A practical manual for identifying geographic clusters," Strategic Management Journal, Wiley Blackwell, vol. 37(1), pages 10-21, January.
    24. Mick Carney & Eric Gedajlovic, 1991. "Vertical integration in Franchise systems: Agency theory and resource explanations," Strategic Management Journal, Wiley Blackwell, vol. 12(8), pages 607-629, November.
    25. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    26. Esther Calderon-Monge & Ivan Pastor-Sanz, 2017. "Effects of Contract and Trust on Franchisor Performance," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 11(4), December.
    27. Jeffrey J. Reuer & Africa Ariño, 2007. "Strategic alliance contracts: dimensions and determinants of contractual complexity," Strategic Management Journal, Wiley Blackwell, vol. 28(3), pages 313-330, March.
    28. Griessmair, Michele & Hussain, Dildar & Windsperger, Josef, 2014. "Trust and the tendency towards multi-unit franchising: A relational governance view," Journal of Business Research, Elsevier, vol. 67(11), pages 2337-2345.
    29. Kyle J. Mayer & Nicholas S. Argyres, 2004. "Learning to Contract: Evidence from the Personal Computer Industry," Organization Science, INFORMS, vol. 15(4), pages 394-410, August.
    30. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    31. Schulze, William S. & Lubatkin, Michael H. & Dino, Richard N., 2003. "Toward a theory of agency and altruism in family firms," Journal of Business Venturing, Elsevier, vol. 18(4), pages 473-490, July.
    32. William E. Gillis & Ellen McEwan & T. Russell Crook & Steven C. Michael, 2011. "Using Tournaments to Reduce Agency Problems: The Case of Franchising," Entrepreneurship Theory and Practice, , vol. 35(3), pages 427-447, May.
    33. Hyun‐Soo Woo & Albert Cannella & Luiz Mesquita, 2019. "How intra‐ and interfirm agglomeration affect new‐unit geographic distance decisions of multiunit firms," Strategic Management Journal, Wiley Blackwell, vol. 40(11), pages 1757-1790, November.
    34. Thomas Mellewigt & Anoop Madhok & Antoinette Weibel, 2007. "Trust and formal contracts in interorganizational relationships - substitutes and complements," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 833-847.
    35. Brickley, James A & Misra, Sanjog & Van Horn, R Lawrence, 2006. "Contract Duration: Evidence from Franchising," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 173-196, April.
    36. Lumineau, Fabrice & Malhotra, Deepak, 2011. "Shadow of the contract: how contract structure shapes inter-firm dispute resolution," MPRA Paper 38359, University Library of Munich, Germany.
    37. Patel, Pankaj C. & Kim, Kyoung Yong & Devaraj, Srikant & Li, Mingxiang, 2018. "Family Ties that B(l)ind: Do Family-Owned Franchisees Have Lower Financial Performance than Nonfamily-Owned Franchisees?," Journal of Retailing, Elsevier, vol. 94(2), pages 231-245.
    38. Nicholas S. Argyres & Janet Bercovitz & Kyle J. Mayer, 2007. "Complementarity and Evolution of Contractual Provisions: An Empirical Study of IT Services Contracts," Organization Science, INFORMS, vol. 18(1), pages 3-19, February.
    39. Steven C. Michael, 2000. "Investments to create bargaining power: the case of franchising," Strategic Management Journal, Wiley Blackwell, vol. 21(4), pages 497-514, April.
    40. Nada Mumdžiev & Josef Windsperger, 2011. "The Structure of Decision Rights in Franchising Networks: A Property Rights Perspective," Entrepreneurship Theory and Practice, , vol. 35(3), pages 449-465, May.
    41. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    42. Francesco Chirico & R. Duane Ireland & David G. Sirmon, 2011. "Franchising and the Family Firm: Creating Unique Sources of Advantage through “Familiness†," Entrepreneurship Theory and Practice, , vol. 35(3), pages 483-501, May.
    43. Arturs Kalnins, 2003. "Hamburger Prices and Spatial Econometrics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(4), pages 591-616, December.
    44. Li, Mingxiang, 2021. "Uses and abuses of statistical control variables: Ruling out or creating alternative explanations?," Journal of Business Research, Elsevier, vol. 126(C), pages 472-488.
    45. Ranjay Gulati & Paul R. Lawrence & Phanish Puranam, 2005. "Adaptation in vertical relationships: beyond incentive conflict," Strategic Management Journal, Wiley Blackwell, vol. 26(5), pages 415-440, May.
    46. Ivar Krumpal, 2013. "Determinants of social desirability bias in sensitive surveys: a literature review," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 2025-2047, June.
    47. J. Myles Shaver & Fredrick Flyer, 2000. "Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States," Strategic Management Journal, Wiley Blackwell, vol. 21(12), pages 1175-1193, December.
    48. Susan F. Lu & Gerard J. Wedig, 2013. "Clustering, Agency Costs and Operating Efficiency: Evidence from Nursing Home Chains," Management Science, INFORMS, vol. 59(3), pages 677-694, May.
    49. Janet E. L. Bercovitz & Beverly B. Tyler, 2014. "Who I Am and How I Contract: The Effect of Contractors’ Roles on the Evolution of Contract Structure in University–Industry Research Agreements," Organization Science, INFORMS, vol. 25(6), pages 1840-1859, December.
    50. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    51. Anne Parmigiani & Miguel Rivera-Santos, 2011. "Clearing a Path Through the Forest : A Meta-Review of Interorganizational Relationships," Post-Print hal-02313129, HAL.
    52. Brill, Jonathan E., 1994. "Beyond managerial opportunism: Supplier power and managerial compliance in a franchised marketing channel," Journal of Business Research, Elsevier, vol. 30(3), pages 211-223, July.
    53. Gary J. Castrogiovanni & James G. Combs & Robert T. Justis, 2006. "Shifting Imperatives: An Integrative View of Resource Scarcity and Agency Reasons for Franchising," Entrepreneurship Theory and Practice, , vol. 30(1), pages 23-40, January.
    54. Arturs Kalnins, 2004. "An Empirical Analysis of Territorial Encroachment Within Franchised and Company-Owned Branded Chains," Marketing Science, INFORMS, vol. 23(4), pages 476-489, September.
    55. Folta, Timothy B. & Cooper, Arnold C. & Baik, Yoon-suk, 2006. "Geographic cluster size and firm performance," Journal of Business Venturing, Elsevier, vol. 21(2), pages 217-242, March.
    56. Bart S. Vanneste & Phanish Puranam, 2010. "Repeated Interactions and Contractual Detail: Identifying the Learning Effect," Organization Science, INFORMS, vol. 21(1), pages 186-201, February.
    57. Linda Argote & Ella Miron-Spektor, 2011. "Organizational Learning: From Experience to Knowledge," Organization Science, INFORMS, vol. 22(5), pages 1123-1137, October.
    58. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-640, June.
    59. Shivaram V. Devarakonda & Brian T. McCann & Jeffrey J. Reuer, 2018. "Marshallian Forces and Governance Externalities: Location Effects on Contractual Safeguards in Research and Development Alliances," Organization Science, INFORMS, vol. 29(6), pages 1112-1129, December.
    60. Wang, Longwei & Yeung, Jeff Hoi Yan & Zhang, Min, 2011. "The impact of trust and contract on innovation performance: The moderating role of environmental uncertainty," International Journal of Production Economics, Elsevier, vol. 134(1), pages 114-122, November.
    61. Erfan Rezvani & Christian Rojas, 2020. "Spatial price competition in the Manhattan hotel market: The role of location, quality, and online reputation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(1), pages 49-63, January.
    62. Huang, Xiaoran & Kang, Jun-Koo, 2017. "Geographic concentration of institutions, corporate governance, and firm value," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 191-218.
    63. Evan Rawley & Robert Seamans, 2020. "Internal agglomeration and productivity: Evidence from microdata," Strategic Management Journal, Wiley Blackwell, vol. 41(10), pages 1770-1798, October.
    64. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 65-86, January.
    65. Dahlstrom, Robert & Haugland, Sven A. & Nygaard, Arne & Rokkan, Aksel I., 2009. "Governance structures in the hotel industry," Journal of Business Research, Elsevier, vol. 62(8), pages 841-847, August.
    66. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    67. Michael Lubatkin & William S. Schulze & N Dino Richard, 2003. "Toward a theory of agency and altruism in family firms," Post-Print hal-02311679, HAL.
    68. Xavier Martin & Robert M. Salomon & Zheying Wu, 2010. "The institutional determinants of agglomeration: a study in the global semiconductor industry," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(6), pages 1769-1800, December.
    69. Michael, Steven C., 2002. "Can a franchise chain coordinate?," Journal of Business Venturing, Elsevier, vol. 17(4), pages 325-341, July.
    70. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-233, April.
    71. Jeffrey J. Reuer & Africa Ariño & Laura Poppo & Todd Zenger, 2016. "Alliance governance," Strategic Management Journal, Wiley Blackwell, vol. 37(13), pages 37-44, December.
    72. Brian T. McCann & Jeffrey J. Reuer & Nandini Lahiri, 2016. "Agglomeration and the choice between acquisitions and alliances: An information economics perspective," Strategic Management Journal, Wiley Blackwell, vol. 37(6), pages 1085-1106, June.
    73. Mellewigt, Thomas & Ehrmann, Thomas & Decker, Carolin, 2011. "How Does the Franchisor's Choice of Different Control Mechanisms Affect Franchisees’ and Employee-Managers’ Satisfaction?," Journal of Retailing, Elsevier, vol. 87(3), pages 320-331.
    74. Reuer, Jeffrey J. & Klijn, Elko, 2018. "Governance of Hybrid Organizations," Annals of Corporate Governance, now publishers, vol. 3(1), pages 1-81, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gillis, William E. & Combs, James G. & Yin, Xiaoli, 2020. "Franchise management capabilities and franchisor performance under alternative franchise ownership strategies," Journal of Business Venturing, Elsevier, vol. 35(1).
    2. Vivian Zheng, Xu & Jenny Ji, Li & Su, Chenting, 2020. "Mitigating the Negative Effects of Regional Clustering in Franchising: The Roles of Governance Mechanisms," Journal of Retailing, Elsevier, vol. 96(3), pages 434-444.
    3. Begoña López-Fernández & Susana López-Bayón, 2018. "Antecedents of early terminations in franchising: franchisor versus franchisee cancelations," Small Business Economics, Springer, vol. 50(4), pages 677-695, April.
    4. Jell-Ojobor, Maria & Windsperger, Josef, 2014. "The Choice of Governance Modes of International Franchise Firms — Development of an Integrative Model," Journal of International Management, Elsevier, vol. 20(2), pages 153-187.
    5. William E. Gillis & Ellen McEwan & T. Russell Crook & Steven C. Michael, 2011. "Using Tournaments to Reduce Agency Problems: The Case of Franchising," Entrepreneurship Theory and Practice, , vol. 35(3), pages 427-447, May.
    6. S. Verbieren & M. Cools & A. Van den Abbeele, 2008. "Franchising. A Literature Review on Management and Control Issues," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(4), pages 398-443.
    7. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers 1502, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    8. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers halshs-01128075, HAL.
    9. Chabowski, Brian R. & Hult, G. Tomas M. & Mena, Jeannette A., 2011. "The Retailing Literature as a Basis for Franchising Research: Using Intellectual Structure to Advance Theory," Journal of Retailing, Elsevier, vol. 87(3), pages 269-284.
    10. Itai Ater & Oren Rigbi, 2007. "Price Control In Franchised Chains: The Case Of McDonald's Dollar Menu," Discussion Papers 06-022, Stanford Institute for Economic Policy Research.
    11. Fang, F., 2019. "When performance shortfall arises, contract or trust? A multi-method study of the impact of contractual and relational governances on performance in public – private partnerships," Other publications TiSEM 473840ee-6945-4a93-9326-5, Tilburg University, School of Economics and Management.
    12. Pushpinder Gill & Stephen K. Kim, 2021. "From franchisee experience to customer experience: their effects on franchisee performance," Journal of the Academy of Marketing Science, Springer, vol. 49(6), pages 1175-1200, November.
    13. Meiseberg, Brinja & Perrigot, Rozenn, 2020. "Pricing-based practices, conflicts and performance in franchising," European Management Journal, Elsevier, vol. 38(6), pages 939-955.
    14. Scott Shane & Venkatesh Shankar & Ashwin Aravindakshan, 2006. "The Effects of New Franchisor Partnering Strategies on Franchise System Size," Management Science, INFORMS, vol. 52(5), pages 773-787, May.
    15. William E. Gillis & James G. Combs & David J. Ketchen Jr., 2014. "Using Resource–Based Theory to Help Explain Plural Form Franchising," Entrepreneurship Theory and Practice, , vol. 38(3), pages 449-472, May.
    16. Boulay, Jacques & Caemmerer, Barbara & Evanschitzky, Heiner & Duniach, Krista, 2020. "Multi-unit franchising from franchisor and franchisee perspectives: Antecedents, performance outcomes, and the optimal mini-chain size," Journal of Business Research, Elsevier, vol. 113(C), pages 49-58.
    17. Vanesa Solís-Rodríguez & Manuel González-Díaz, 2019. "Prior interactions and contractual completeness in Spanish franchising," Small Business Economics, Springer, vol. 53(3), pages 795-812, October.
    18. Dildar Hussain & Marijana Sreckovic & Josef Windsperger, 2018. "An organizational capability perspective on multi-unit franchising," Small Business Economics, Springer, vol. 50(4), pages 717-727, April.
    19. James G. Combs & David J. Ketchen Jr & Jeremy C. Short, 2011. "Franchising Research: Major Milestones, New Directions, and its Future within Entrepreneurship," Entrepreneurship Theory and Practice, , vol. 35(3), pages 413-425, May.
    20. Combs, James G. & Ketchen, David Jr. & Hoover, Vera L., 2004. "A strategic groups approach to the franchising-performance relationship," Journal of Business Venturing, Elsevier, vol. 19(6), pages 877-897, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:157:y:2023:i:c:s0148296322010359. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.