Abstract
Previous literature has not examined the dual role of trust in franchise relationships. We extend the franchise and relational governance literature by showing that trust has both a “bright side” and a “dark side” in franchisor–franchisee relationships. Based on transaction cost and knowledge‐based reasoning, we argue that intangible knowledge assets and environmental uncertainty have an indirect effect on performance via trust, due to its relational risk and knowledge exchange effect. Using data from the franchise sector in Germany, we show that trust positively mediates the impact of intangible knowledge assets and negatively mediates the impact of environmental uncertainty on franchisor performance. The first effect refers to the “bright side” of trust showing that intangible brand name assets increase trust which, in turn, has a positive effect on performance. Conversely, the second effect refers to the “dark side” of trust highlighting that environmental uncertainty diminishes trust resulting in a negative effect on performance.
Highlights
This study reveals the dual role of trust in franchisor–franchisee relationships
The central focus of our research model is to test the mediating role of trust by hypothesizing that the transaction cost variables and the knowledge‐based variables exert a direct effect on performance and affect performance indirectly via trust
More importantly in the context of the present study, we find that environmental uncertainty and intangible brand name assets affect the performance of franchise firms via trust (Figure 3 & Table 5)
Summary
This study reveals the dual role of trust in franchisor–franchisee relationships. Trust can improve performance, but it can hurt performance in network relationships (Villena, Revilla, & Choi, 2011). Most of the previous studies in franchising research focus on the positive effect of trust that results from mitigating relational risk and increasing transaction value by facilitating knowledge sharing between the partners These effects constitute the “bright side” of trust in network relationships (Noordhoff, Kyriakopoulos, Moorman, Pauwels, & Delleart, 2011; Zand, 1972). The central focus of our research model is to test the mediating role of trust by hypothesizing that the transaction cost variables (environmental uncertainty and transaction‐specific investments) and the knowledge‐based variables (intangible system knowhow and brand name assets) exert a direct effect on performance and affect performance indirectly via trust (see Figure 1). Environmental uncertainty has a negative effect on performance of franchise firms
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