Conflict Aftermath: Dispute Resolution and Financial Performance in Franchising

Abstract

Franchisor–franchisee relationships entail frequent disputes, some of which escalate to litigation. Yet, the filing of litigation does not represent the end of conflict management. Firms can still choose to de-escalate conflicts after the filing of litigation by choosing alternative dispute resolution (ADR) mechanisms. To date, the impact of post-litigation dispute resolution mechanisms on franchise systems’ financial performance has not been studied in the extant literature. This study investigates the impact of franchisor- versus franchisee-initiated litigations, individually and jointly with dispute resolution mechanisms and franchise statutory regimes (i.e., relationship law and registration law), on franchise system performance. To address these research questions, a longitudinal study of actual conflict episodes based on objective accounts of dispute initiation, resolution, and corresponding outcomes was conducted. Theoretical contributions to the distribution channels conflict management literature and managerial implications for the franchise industry are offered.