Contractibility and Ownership Redirection in Franchising: A Property Rights View

39 Pages Posted: 26 May 2006

See all articles by Josef Windsperger

Josef Windsperger

University of Vienna

Rajiv P. Dant

Michael F Price College of Business, University of Oklahoma

Date Written: October 2005

Abstract

This paper offers a property rights theoretical interpretation of the ownership redirection hypothesis advanced by Oxenfeldt and Kelly (Oxenfeldt and Kelly 1968). In a nutshell, couched in resource dependence theory, the ownership redirection hypothesis argues that successful franchise systems will eventually become corporate owned systems because of the reacquisition of franchisee units by the more powerful, and resource-flush franchisors. We argue that the structure and dynamics of ownership patterns in franchising networks depends on the contractibility of the franchisor's system-specific assets and the contractibility of the franchisee's local market assets. Under the property rights view, ownership redirection will result from an increase in the contractibility of the franchisee's local market assets (local market information, financial resources and managerial capabilities) and the resultant increase of the franchisor's bargaining power during the contract period. We extend the franchise literature by arguing that informational, financial and managerial resource constraints are only relevant for the change of ownership structure if they are non-contractible. This hypothesis is evaluated using data collected from the Austrian franchise sector. The empirical results are largely supportive of the hypothesis.

Keywords: Franchising, Ownership Redirection, Property Rights

JEL Classification: M10, M13, M30, M31

Suggested Citation

Windsperger, Josef and Dant, Rajiv P., Contractibility and Ownership Redirection in Franchising: A Property Rights View (October 2005). Available at SSRN: https://ssrn.com/abstract=904652 or http://dx.doi.org/10.2139/ssrn.904652

Josef Windsperger (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, A1090
Austria

HOME PAGE: http://im.univie.ac.at

Rajiv P. Dant

Michael F Price College of Business, University of Oklahoma ( email )

Price College of Business
307 West Brooks
Norman, OK 73019
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
175
Abstract Views
1,437
rank
218,244
PlumX Metrics