Effect of Franchise Growth on Franchisees’ Investment in Human Resource Management

Abstract

The growth of corporations influences the way that subsidiaries manage their employees. Drawing on the theory of organizational routines and agency theory, I argue that the effect of corporate growth varies depending on the area of HR management and the governance strategies that parent firms adopt to control their subsidiaries. Findings based on 893 franchisees in the quick service restaurant sector indicate a positive relationship between the growth of franchise brands and franchisees’ investment in standardized skill-enhancing HR practices such as selection and training, but not in non-standardized motivation-enhancing HR practices such as pay and rewards. Transactional governance strategies motivate franchisees to comply with franchisor requirements and invest in skill-enhancing HR practices. By contrast, when franchisors adopt relational governance strategies, franchisees are more likely to increase their investment in motivation-enhancing HR practices. This study provides important implications for research on organizational growth and strategic human resource management.