Resource Scarcity and Agency Theory Predictions Concerning the Continued Use of Franchising in Multi-Outlet Networks

Abstract:     
The factors that influence franchisors' propensity tofranchise are investigated. Although most studies rely on either resourcescarcity or agency theory to generate hypotheses, the hypotheses in this studyare grounded in both perspectives. The first three hypotheses predict thatyounger, smaller franchisors with a multinational scope are likely to make moreextensive use of franchising. The remaining hypothesis proposes that outlet start-up costs are likely tokeep franchisors from making the choice to franchise. Data on 439 franchisorslisted in Entrepreneur magazine's January 1999 and 2000franchisor listing are used to test the hypotheses. Although the data support most of the hypotheses, they offer no evidence tosuggest that young firms are more likely than older firms to pursuefranchising. In fact, franchising increases quickly with firm age. The resultsimply that any account of franchising must make use of both resource scarcityand agency theory. (SAA)

Keywords: Firm size, Firm age, Startup costs, International expansion, Resource model, Agency theory, Franchises

Accepted Paper Series