Effects of Contract and Trust on Franchisor Performance

The franchisor-franchisee relationship is governed by contracts and trust. This paper analyzes how formal (contracts) and relational (trust) governance mechanisms affected franchisor performance in a service sector franchise for the period 2008¬2015. Using the SOM method in the empirical analysis, t...

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Bibliographic Details
Published in:Contemporary economics 2017-12, Vol.11 (4), p.383-400
Main Authors: Calderon-Monge, Esther, Pastor-Sanz, Ivan
Format: Article
Language:English
Subjects:
Business Economy / Management
contract
Contracts
Corporate governance
cross-franchising
Customers
Evaluation research
Financial Markets
Franchising
Governance
Marketing / Advertising
multi-unit franchising
Present Times (2010 - today)
Service industries
single-unit franchising
Transformation Period (1990 - 2010)
Trust
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Summary:The franchisor-franchisee relationship is governed by contracts and trust. This paper analyzes how formal (contracts) and relational (trust) governance mechanisms affected franchisor performance in a service sector franchise for the period 2008¬2015. Using the SOM method in the empirical analysis, the results revealed that trust-based governance was more prominent than contract based governance in the multi-unit franchise network and the cross-franchising network, negatively affecting franchisor performance in the multi-unit franchise network and positively affecting franchisor performance in the cross-franchising network. In contrast, contracts were more prominent than trust in single-unit franchising, negatively affecting franchisor performance. The primary practical implication is that the franchisor should prevent franchisees in the MUF network from opening new outlets in the same city and competing for the existing outlet’s customers.
ISSN:2084-0845
2300-8814
2300-8814
DOI:10.5709/ce.1897-9254.251