Vertical integration in Franchise systems: Agency theory and resource explanations
Abstract
The ownership strategies of 128 retail franchising systems are examined in the light of existing agency and resource scarcity explanations of this organizational form. Findings suggest that franchiser ownership strategies are more heterogeneous than previously recognized, and that neither explanation, alone accounts for observed ownership patterns. A path model of franchiser ownership patterns embodying agency and resource scarcity elements is developed that is consistent with empirical findings.
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Franchisors could economize on their monitoring costs through aligning their incentives with those of their franchisees.
“Carney and Gedajlovic (1991) suggest an administrative efficiency thesis in the agency theory-driven prescription, since franchisors could economize on their monitoring costs through the aligning of their incentives with those of their franchisees.”
From Control techniques and upward flow of information in franchising in distant markets: conceptualization and preliminary evidence (1998) · cites this paper as Carney and Gedajlovic 1991
By adopting the franchising option, principals can arguably address the monitoring issue through incentive alignment by offering franchisees residual claims to downstream earnings.
“However, by adopting the franchising option, principals can arguably address the monitoring issue through (as noted above) incentive alignment by offering agents (franchisees) residual claims to downstream earnings (Alchian and Demsetz 1972;Carney and Gedajlovic 1991).”
From Control techniques and upward flow of information in franchising in distant markets: conceptualization and preliminary evidence (1998) · cites this paper as Carney and Gedajlovic 1991
The use of high-powered incentives gives rise to three agency problems: inefficient investment, free-riding, and quasi-rent appropriation.
“Carney and Gedajlovic (1991) argue that the use of high-powered incentives gives rise to three other agency problems: (1) inefficient investment, (2) free-riding, and (3) quasi-rent appropriation.”
From Control techniques and upward flow of information in franchising in distant markets: conceptualization and preliminary evidence (1998) · cites this paper as Carney and Gedajlovic 1991
Cited by
Sorted by citations
Dant, R. P., & Nasr, N. I. (1998) · Journal of Business Venturing · doi:10.1016/s0883-9026(97)00040-2 · Cited by 168 · see citing works
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Fladmoe-Lindquist, K. (1996) · Journal of Business Venturing · doi:10.1016/0883-9026(96)00056-0 · Cited by 138 · see citing works
Expansion strategy of international hotel firms
Chen, J. J., & Dimou, I. (2005) · Journal of Business Research · doi:10.1016/j.jbusres.2004.11.001 · Cited by 113 · see citing works
International Franchise Expansion: Does Market Propinquity Matter?
Hoffman, R. C., Kincaid, J. F., & Preble, J. F. (2008) · Multinational Business Review · doi:10.1108/1525383x200800017 · Cited by 16 · see citing works
- Authors
- Carney, M., & Gedajlovic, E.
- Affiliations
- Concordia University (CA)
- Venue
- Strategic Management Journal
- Publisher
- Wiley
- Published
- 1991-11
- Volume
- 12
- Issue
- 8
- Pages
- 607-629
- ISSN
- 0143-2095 (ISSN-L)
- 1097-0266
- OpenAlex
- W1963964187
- Cited by
- 438
- References
- 0
- Citations by year
- 2026: 1 · 2025: 2 · 2024: 4 · 2023: 9 · 2022: 4 · 2021: 11 · 2020: 13 · 2019: 10 · 2018: 16 · 2017: 21 · 2016: 18 · 2015: 14 · 2014: 21 · 2013: 17 · 2012: 8
- FWCI
- 15.84
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Strategic Management Journal (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Strategy and Management › Franchising Strategies and Performance
- Social Sciences › Business, Management and Accounting › Management Information Systems › Outsourcing and Supply Chain Management
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- franchising, vertical integration, agency theory, resource constraints, retail franchising, ownership patterns, path analysis
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