Using Resource–Based Theory to Help Explain Plural Form Franchising

Abstract

Agency theory is the dominant explanation for entrepreneurs’ decisions about how much to grow through franchising vis–à–vis company ownership. We introduce a resource–based explanation and submit that the proportion franchised is influenced by efforts to organize franchisor–owned and relational strategic assets so that their value can be best leveraged to meet key strategic goals. Using data from 168 franchisors, we found that relational (i.e., interfirm trust and knowledge–sharing routines), but not franchisor–owned (i.e., brand reputation and operating routines), strategic assets influence the proportion franchised. The study offers preliminary evidence that resource–based theory has merit as a complementary explanation for franchising.