Explaining the Distribution of Franchised and Company-Owned Outlets in Franchise Systems

Abstract

Agency theory research on franchising, to date, has posited linear effects of franchisor characteristics on the distribution of company-owned and franchised outlets in franchise systems. This study argues that many of these characteristics actually have curvilinear effects. Using pooled cross-sectional time series regression analysis on U.S. franchisors over the 1991-1994 period, this study tests the curvilinear effects of geographic dispersion, royalty rates, system growth rate, system size, franchise fee and initial investment on the proportion of outlets franchised.