Distribution Network Governance and Franchisor Performance


Student thesis: Doctoral Thesis

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Award date5 Jun 2019


This dissertation examines management issues in distributor networks from governance and network perspectives. Two interrelated essays explore proper governance mechanisms given the geographic and social structure of franchise distribution networks. The first essay examines the appropriate use of governance mechanisms employed by franchisors, given the geographic structure of distribution networks shaped by regional clustering (i.e. a geographical configuration of franchised outlets in close proximity). Building upon agency theory and emerging literature on regional clustering in marketing, we postulate that the density of regional clustering of franchised outlets has an inverted U-shaped impact on the financial performance of franchisors. To mitigate the negative effects of regional clustering, franchisors can employ more flexible contracts that allow franchisees to engage in local innovation. In addition, the services provided by the franchisor can help enhance the competitiveness of the franchise system and serve as a buffer for the negative effects of regional clustering. The results from the analysis of 78 franchise systems over a 10-year period (2003–2012) have supported our hypotheses.

In contrast to existing governance research, which typically adopts agency theory or transaction cost theory explanations, the second essay takes a network perspective and focuses on the social structure of distribution networks. We link multi-unit franchising (MUF) strategy to research on cohesive subgroups and postulate that MUF could potentially both benefit and harm growth of the franchise system, depending on (1) the ratio of MUF out of the total of franchised outlets; and (2) subgroup configuration properties such as subgroup number and subgroup size imbalance. In particular, we hypothesize a curvilinear relationship between the ratio of MUF and franchisees’ survival rate, and, building upon organizational research on subgroup configuration, we hypothesize that subgroup number attenuates the baseline inverted U-shaped relationship, while subgroup size imbalance intensifies it. We empirically test our hypotheses based on our dataset of 13 franchise chains across 50 U.S. states during the examination window 2006-2012, consisting of 927 region-chain-year observations.

    Research areas

  • Contract Governance, Relational Governance, Regional Clustering, Multi-unit franchising, Cohesive Subgroup, Subgroup Configuration