Franchisor-franchisee bankruptcy and the efficacy of franchisee governance

Kersi D. Antia, Sudha Mani, Kenneth H. Wathne

Research output: Contribution to journalArticleResearchpeer-review

15 Citations (Scopus)

Abstract

Franchisors' long-term viability is tied to the ongoing operations of their franchisees. To ensure the ongoing performance of franchisees, franchisors deploy multiple governance mechanisms. This study assesses how governance mechanisms deployed to enhance franchisee ability (via selection and socialization) and motivation (via incentives and monitoring) impact franchisee bankruptcy. The authors examine the individual and joint effects of deploying governance mechanisms that share the same underlying objective, namely, to enhance franchisee ability and motivation. They also assess how motivation-inducing mechanisms may serve to counter the motivation-dampening effect of an increased royalty rate. Relying on data from multiple archival sources, the authors identify all bankruptcy filings by franchisees and their franchisors across 1, 115 franchise systems over a 13-year observation window. Their findings document a positive and significant relationship between franchisee and franchisor bankruptcy. They also find main and interaction effects of the ability- and motivation-influencing governance mechanisms on the likelihood of franchisee bankruptcy, and the existence of significant bankruptcy spillovers among franchisees within the same franchise system. They discuss implications for franchise theory and management.

Original languageEnglish
Pages (from-to)952-967
Number of pages16
JournalJournal of Marketing Research
Volume54
Issue number6
DOIs
Publication statusPublished - 1 Dec 2017

Keywords

  • Franchisee bankruptcy
  • Franchisor bankruptcy
  • Governance mechanisms
  • Royalty rate

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