This thesis examines the influence of governance mechanisms on the relationship between the location of franchised outlets and their survival prospects. Two inter-related essays explore the efficacy of a set of franchisor-deployed governance mechanisms by reference to the relative locations and the density of franchised outlets. These two essays prompt franchisors to re-examine their approach to governing franchise networks so that it accords with the geographical configurations of their outlets.

Essay 1 proposes a new rule of governance for franchisors, namely density-based governance. Specifically, the study assesses the effectiveness of franchisor-deployed governance mechanisms when outlets are located in high- or low-density regions, which are defined as regions in which the density of franchised outlets is above or below the unit of demand (UoD)-adjusted average value for the focal firm. The study first proposes a means of detecting the formation of high-density regions by using an algorithm-based approach that incorporates an UoD-adjusted density threshold. This method is capable of differentiating between high- and low-density regions with irregular shapes and of accommodating variations in demand across regions. Then, given that outlet configuration plays a crucial role in the governance of franchising, the essay examines how ownership configuration, i.e., the number of franchisees, and geographic configuration, i.e., headquarter distance, directly and jointly affect the survival of franchised outlets in high- and low-density regions. The essay also examines the manner in which these effects change in the presence of economic adversity. The results, which are based on 35,199 observations across 50 states in the United States over the 2008-2021 period, suggest that the number of franchisees decreases the likelihood of a franchised outlet surviving in high-density regions (i.e., within clusters) and that headquarter distance increases the likelihood of outlet failure in low-density regions (i.e., outside of clusters). The joint effects of ownership configuration and geographic configuration also vary with density, as do the implications of economic adversity.

Essay 2 examines the governance mechanisms that franchisors can employ when outlet failure exhibits contagion effects. Anchoring on social contagion theory and the emerging literature on the negative externalities that result from store closure, the essay argues that contagion is a possibility in the franchising context. The essay identifies two related yet distinct contagion paths, namely the geographic proximity and the customer similarity path, that are associated with the two primary sources of contagion, cohesion and structural equivalence, that social contagion theory has identified. After identifying these paths, the essay explores the effectiveness of governance mechanisms in mitigating the contagion effect from the perspectives of the operation of franchise systems and customers. The essay hypothesizes that advertising support from the franchisor can help mitigate customer similarity path contagion and that a less ambiguous contract of franchisee obligation could curb the geographic proximity path of contagion. In addition, plural governance can deter the geographic path of contagion while amplify the customer similarity path of contagion. Two studies that examine the phenomenon of contagious store failure from the standpoints of franchise systems and franchise customers are presented. Study 1 explores the influence of preceding outlet failure by drawing on geographical information system (GIS)-based outlet-level data from 12,759 outlets that were owned by eight franchisors in the United States between 2016 and 2022. Study 2 is based on data from Google Maps customer reviews of all of the stores from Study 1. By employing novel techniques of text analysis, the essay provides a refined understanding of how customer ratings, customer sentiment, and topics evolve after observed and unobserved store closures in the franchise network.