An Empirical Look at Franchising as an Organizational Form

Abstract

Franchise contracts are identified as a hybrid form of economic organization. Motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm, firm growth, managerial and employee selection, a nd brand-name capital. Empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available. The results s uggest that both principal-agent incentives and informational incenti ves favor the use of franchise arrangements. Copyright 1988 by the University of Chicago.