Plural form and franchisor performance: Early empirical findings from Europe

Abstract

This paper deals with the relationships between plural form and performance in franchising networks in Europe. It is proposed that a franchisor’s life cycle stage and human capital assets influence the relationship between plural form and performance. The model has been estimated using panel data on 41 publicly listed European franchising networks in the 1998–2007 period. The proportion of network-franchised units to the total number of its units in its distribution system is used as the indicator of its plural form (franchise proportion). Following an instrumental approach, the network performance is measured at the franchisor level by its industry-adjusted Return on Assets (ROA) and a relative stock market valuation measure of intangible human capital is used. The early results show that the impact of franchise proportion on performance is greater for franchisors with high intangible human capital compared to franchisors with low intangible human capital. Overall, results provide support for the contention that the franchisors’ performance is contingent on the “fit” between governance structure (franchise proportion) and resources (critical human assets). In contrast, evidence that the governance/performance relationship is contingent on life cycle stage or franchisor’s age is not found. However our results suggest that franchisor’s age could weaken the relationship between franchise proportion and performance. These results might suggest that younger franchisors with high human capital should increase their franchise proportion to enhance their financial performance.