Can Capital Scarcity Help Agency Theory Explain Franchising? Revisiting the Capital Scarcity Hypothesis

Abstract

We offer a rationale for a link between capital scarcity and franchising. Predictions respectively based on agency theory and the capital scarcity hypothesis were tested among 91 restaurant chains. Our specific focus was on whether or not variables based on capital scarcity could explain variance in firms' franchising decisions beyond what was explained by agency variables. The latter were significant predictors of franchising, and the capital scarcity variables explained additional variance, indicating that capital is among the resources related to franchising.