THE STRATEGIC OR NOT-SO STRATEGIC EVOLUTION OF FRANCHISE OWNERSHIP PATTERNS – A STUDY OF OPTIMAL PROPORTIONS

Abstract

Throughout the last fifty years, scholars have explained franchising primarily through two limited means: agency theory and resource constraints theory. This paper investigates the proportions of company owned stores vs franchisee owned stores. Hypotheses are presented about the proportions of franchisee owned outlets among all industries and then among eight of the largest franchised industries within the US. The findings generally support that most firms use a mixed-method approach when determining their franchising mix but rely mostly on agency theory for most of that mix. The study also finds that the initial investment/asset requirement is the key mechanism to controlling the appropriate franchise proportions.