Organizational Design and Control Across Multiple Markets: The Case of Franchising in the Convenience Store Industry
The Accounting Review, Forthcoming
50 Pages Posted: 1 Aug 2007 Last revised: 13 Aug 2009
Date Written: February 2, 2009
Many companies operate units that are dispersed across different types of markets, serving significantly diverging customer bases. Such dispersion is likely to compromise headquarters' ability to control local managers' behavior and satisfy the needs of different customer types. In this study we find that market-type dispersion is an important determinant of the delegation of decision rights and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is positively associated with the degree of franchising at the chain level as well as the probability of franchising a given store within a chain. Our results are robust to alternative definitions of market-type dispersion and to other determinants of franchising such as the stores' geographic dispersion. Additional analyses suggest that chains that do not franchise cope with market-type dispersion by decentralizing operations from headquarters to their stores and providing their store managers higher variable pay.
Keywords: Control Systems, Franchising, Agency Costs, Market Dispersion, Retailing
JEL Classification: D82, L22, M41, M55, M40, M46
Suggested Citation: Suggested Citation