Entrepreneurial autonomy, incentives, and relational governance in Franchise chains

Abstract

Franchisee autonomy fosters system-wide adaptability and outlet-owners’ motivation but also raises the costs from agency problems present in franchisee-franchisor dyads. Advancing upon the understanding of agency issues involved in franchising, we test the argument that chains counterbalance the loss in control inherent to autonomy with relational governance mechanisms. The empirical results provided strong support for this presumption. In addition and most notably, we found that relational governance becomes more important the weaker agents’ incentives are aligned with the interests of the entire network. The moderating effects of five franchisee characteristics influencing goal congruencies were considered: multi-unit ownership, age of the relationship, geographic distance, economic success, and the level of perceived intra-chain competition. Implications for chain management are provided.