An Analysis of Shareholder Return in Public Franchisor Companies
he literature clearly establishes that franchising utilizes a share contract to induce franchisee investment of human and financial capital and to create entrepreneurial incentives (Michael [1993]; Spinelli and Birley [1996]). The concept innovator (franchisor) contractually aligns with a local entrepreneur (franchisee) for geographically targeted execution of the concept. To induce local management and investment the franchisor shares the economic rents with the franchisee. Inherent in this definition is the assumption that prospective wealth creation is a major motivation for both franchisor and franchisee. Wealth creation is inextricably linked with system growth. Therefore, a rationale franchise player will focus on concept growth and be interested in tools that provide speed and size advantages. Capital is clearly a growth tool. A number of franchisors have elected to trade as publicly quoted companies, gaining access to the financial resources of the market at large while bearing the costs associated with public disclosure and scrutiny. Both the franchising and the flotation decision are rationally assumed to have been made in order to maximize franchisor value, a result best achieved through system growth. Therefore, select franchisors have chosen to acquire capital through both their franchisees and through the public capital markets. In this article, we explore the impact of such a strategy by examining the actual stock market performance of
SUE BIRLEY
BENOIT LELEUX
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is the S. Schmidheiny Professor of Entrepreneurship at IMD – the International Institute of Management Development in Chemin de Bellerie Lausanne, Switzerland.
[email protected]
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is director/professor at the Management School at Imperial College in London, England.
[email protected]
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public franchisors and the characteristics of the best performing companies.
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is the director of the Arthur M. Blank Center for Entrepreneurship and chair of the Entrepreneurship Division at Babson College in Babson Park, MA.
[email protected]
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STEPHEN SPINELLI, JR.,
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STEPHEN SPINELLI, JR., SUE BIRLEY, AND BENOIT LELEUX
LITERATURE REVIEW
Caves and Murphy [1976] define the central feature of business format franchising as the rental of an intangible proprietary asset and the operation of a decentralized production or distribution process. The adoption of such a strategy will produce both costs and benefits for both parties concerned—the franchisor and the franchisee. The literature suggests three major potential advantages to the franchising model of growth: greater administrative efficiency, more efficient risk sharing, and a reduction in resource constraints. We review each of these arguments and address the impact of the theoretical underpinning on the decision to be both a franchisor and a publicly traded company. Administrative Efficiency
There is a rich literature arguing agency theory as applied to franchising (Fama and Jensen [1983a, 1983b]; Martin [1988]; Eisenhardt [1989]; Brickley, Dark, and Weisbach [1991]; Carney and Gedajlovic [1991]; LaFontaine [1992]; Spinelli and Birley [1996]). Organizations may decide to grow by employing managers to operate local stores. However, this decouples ownership and management at the outlet level. Thus there is the potential for THE JOURNAL OF PRIVATE EQUITY
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Agency theory highlights the fact that the burden of administrative efficiency is greater in periods of rapid growth (Fladmoe-Lindquist [1996]), when resources are required not only for the development of new outlets but also for additional levels of management and for the improvement both of the administrative infrastructure and of knowledge of the business opportunity (Huszaugh, Huszaugh, and McIntyre [1992]). Clearly, the latter may be obtained over time through experience. However, taking the time to develop a thorough knowledge of all aspects of the business will, clearly, constrain the rate of growth. Franchising provides amelioration of agency problems since administrative efficiency is improved by devolving ownership of the outlet to the franchisee, thus directly relating managerial reward to outlet performance. The franchisor suffers less from moral hazards because, for example, a dollar “lost” at the store level results in only the royalty percentage loss to the franchisor. As a consequence, the entrepreneur is able to grow the business faster than if he/she had used company owned outlets. However, public capitalization would theoretically provide the additional resources to assist concept and infrastructure development. Public capitalization would validate the potential market opportunity addressed by the franchise concept. Additionally, if theory argues that capital enhances franchise system growth, adding public capital to franchisee capital should accelerate growth and provide advantage to a proprietary franchise system. Total system size and number of franchised outlets are indicated by agency theory as positive indicators of a superior concept performance.
Inherent in the franchise relationship is a contract between the parties to the deal—franchisee and franchisor —that implies some level of risk sharing. Two dimensions of risk are of particular interest in this article. First, Holmstrom and Milgrom [1991, 1994] provide a conceptual framework to analyze the relationship between the measurability of tasks and the optimal mix of incentives and monitoring activities. They suggest that the tasks that are less amenable to measurement due to fuzzy metrics will tend to dampen the incentive component and put the burden of control on pure monitoring activities. This implies that franchising may be the optimal control mechanism when performance measurement is relatively easy and the consequent performance-based incentive system is operating efficiently. When the metrics for performance are questionable, ambiguous, and/or time-delayed, direct monitoring by corporate headquarters may be more efficient. Clearly, this is not a simple dichotomy. Martin [1988] concludes that franchisors more efficiently manage those outlets that the company self-defines as within an efficient administrative distance. The implication is that both franchised and company owned outlets might provide optimal return. However, development of company owned outlets is resource intensive. The second dimension of risk relates to the diversification of the franchisee investment portfolio. Rubin [1978, 1990] posits that franchisees invest a significant portion of their net worth in a single outlet. As a result, they are not taking full advantage of the diversification benefits that accrue to holding a diversified portfolio of outlets in different franchise systems and so face a high level of franchisor-specific risk. In a frictionless market, no additional returns would be expected to compensate for what is, in effect, self-inflicted pain. However, the franchise market is far from frictionless, with limited buyers and sellers, large degrees of informational asymmetries, and constrained capital. Under such circumstances, it is conceivable that above-market rates of return need to be provided to franchisees to entice them to join the system. The risk sharing benefits of franchising, initially conceived at the franchisor level, are thus negated at the franchisee level. Therefore, franchisees are more likely to invest in those franchises that outperform the general corporate market. The corollary is that high-growth franchisors must outperform the market in order to attract an increasing number of quality franchisees. The distribution of the productive benefits of the
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Administrative Efficiency and the Public Franchisor
Risk Management
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agency concerns resulting in suboptimal performance. Imperfect linkages between manager compensation and the performance of the business (Carney and Gedajlovic [1991]; Kruegger [1991]; Castrogiovanni, Bennett, and Combs [1995]) compound the problem. Since the outlet managers do not directly reap the rewards or suffer the consequences of their actions, the feedback mechanism that could reduce shirking is, in effect, rusty, and subject to costly delays (Holmstrom [1979]). To correct this effect, the entrepreneur must incur monitoring costs, severely restricting both the speed and the extent of growth (McDougall, Shane, and Oviatt [1994]).
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AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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Resource Constraints
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Resource constraint theory indicates that both capital conservation and concept growth are aided by franchising (Oxenfeldt and Kelly [1969]). Franchisees provide cash to the franchisor in the form of franchise fees and royalties, and also provide investment for infrastructure through the purchase or rent of fixed assets (LaFontaine and Kaufman [1994]). This precludes the need for the franchisor to raise money in order to grow (FladmoeLindquist [1996]) while at the same time conserving capital (Martin and Justis [1993]) and establishing a distribution network quickly (McGuire and Staelin [1983]). Thus, Dant [1995] concludes that entrepreneurs perceive the opportunity for rapid growth to be an important reason to franchise. However, as noted above, the franchise relationship is characterized by high degrees of informational asymmetries. Indeed, the U.S. Federal Trade Commission (FTC) does not require franchisors to disclose franchisee earnings, reinforcing the franchisor’s ability to camouflage poor performance and earn informational rents for far longer than would otherwise prevail under more stringent information disclosure rules. The FTC argument is that a disclosure of average earnings would be as misleading as no disclosure at all since wide disparSUMMER 2003
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An important use of corporate capital is to develop outlets that the company self-defines as within an “efficient administrative distance,” while franchisee capital is used to develop outlets in the more remote locations. If this argument holds, then it is to be expected that those entrepreneurs who adopt this type of outlet development strategy will grow faster than their colleagues who do not. This was, indeed, found to be the case by Shane [1996] in his study of start-up franchises; and by Kaufman and Dant [1996] in their survey of franchised fast food restaurant industry. Public capitalization is a clear option to provide the resources that would allow the franchisor to develop company owned and operated outlets in the administratively efficient area, and thus keep more of the economic rents than would be shared with the franchisee. The development of company owned outlets signals a superior performing concept.
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Risk Management and the Public Franchisor
ities exist among franchisees (Tannenbaum [1997]). However, these limited forced disclosures do not benefit all franchisors either, generating a “lemons” problem (Akerlof [1970]), whereby good firms are pooled with bad firms and, unable to attract capital at reasonable rates, progressively disappear from the market, giving way to an ever lower average quality pool. Laffont [1989] suggests that such an environment also offers the opportunity for franchisors to signal their superior quality by engaging in activities that cannot be mimicked by their lower quality siblings (see also Riley [1975]; Kreps and Wilson [1982]; Milgrom and Roberts [1986]). The contractual elements of the franchisee-franchisor relationship may offer the tools to facilitate separating equilibria. Royalties on sales, for example, are said to be incentive-compatible since a royalty is a variable cost incurred simultaneously with the generation of revenues. Thus, the franchisor profits substantively depend upon the franchisee’s success. By contrast, an up-front fee is more burdensome for the franchisee since it raises the amount of the initial investment. Thus, if a franchisor is concerned that the operation will not generate acceptable revenues and the revenue generating capacity (quality) of a concept is not easily observable ex ante, he/she may opt for a high up-front franchise fee, a franchisor-revenue maximizing move. However, if he/she believes that the unit will generate significant sales, then royalties are a better way to achieve the highest level of rents. If these are, indeed, realized, the franchise could be viewed as higher quality since both franchisee and franchisor gain significantly, the franchise becomes attractive to a wider group of potential franchisees, and growth rates are enhanced. A key contractual element in the franchise relationship is the term of the agreement. Term of the agreement clearly affects the number of years a franchisee can hope to generate an income stream.
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relationship as indicated by the up-front franchise fee and the royalty rate are signals to the marketplace of concept quality.
Resource Constraint and the Public Franchisor
The literature argues that franchisee capital precludes the need by the franchisor to raise money for growth (Fladmoe-Lindquist [1996] et al.) while at the same time focusing the need for capital on rapid growth. Indeed, McGuire and Staelin [1983] discuss the acquisition of franchisee capital and speed of growth as essential components of franchising. There is no logical preclusion of franchisor acquisition of public capital as a further resource THE JOURNAL OF PRIVATE EQUITY
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Much of the literature assumes that the franchisee and the franchisor are the primary source of capital for growth. However, this is not necessarily the case. The franchise company has the option of raising equity capital through a public listing. This enhanced route for capital acquisition clearly provides advantages for growth, thus providing risk amelioration in relation to the nonfranchised competitor. Taken with the arguments developed above, that a franchised system that is growing must provide greater than average returns in order to attract new franchisees, we propose: Hypothesis 1: Public franchisors will outperform a reference portfolio of stocks. The issue that arises is the determination of an appropriate reference group. Although franchisors operate in a wide variety of sectors, there is a bias towards service industries. (See Exhibit 1 for the industry distribution of the sample firms.) As an investment portfolio, though, such a diversified group would be expected to exhibit a systematic risk coefficient similar to that of the market as a whole. Hypothesis 2: Public franchisors will have a systematic risk coefficient equal to the market average of 1.0.
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The Public Franchise
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RESEARCH HYPOTHESES
cial constraint model thus supports a negative relationship between franchisor performance and percentage of corporate owned stores. On the other hand, a rational franchisor with a good concept may also elect to own most of its stores to reap the maximum benefits from each unit, even if at the cost of growth speed. The rent-maximizing model thus posits a positive relationship between franchisor returns and the percentage of corporate owned outlets. Second, higher franchise fees, royalties, and advertising payments from franchisees should increase the returns to franchisor capital, supporting a positive relationship between these three explanatory variables and franchisor performance. Under severe information asymmetries, though, franchisor rents may very well be maximized under a costly signaling arrangement, whereby quality franchisors “signal” their unobservable quality by voluntarily aligning their future profits to those of franchisees through a lower up-front franchise fee and relying instead mostly on royalties. Under such a signaling model, a negative relationship between franchise fees and franchisor performance is posited. Third, the total number of outlets in the system can serve as a proxy for the franchisor’s relative bargaining power vis-à-vis suppliers (positive effect anticipated on performance) and franchisees (negative effect anticipated).
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deconstraining mechanism. The most economically favorable concepts will require more resources to maximize total return by allowing the franchisor to own and operate company stores, create infrastructure to support franchisees, and to commit to a research and development regimen. Public capitalization may also influence the allocation of productive benefits of the franchise relationship, allowing a reduction in the up-front franchise fee and (logically) increasing the ongoing royalty fee.
A Performance Model
We now turn to a model that may explain the performance of these public franchisors. First of all, growth itself, and its associated investments in fixed assets and working capital, stresses the financial resources of a company, leading to relatively lower reported earnings. The financial constraints of growth should be particularly marked for those companies that elect to own most of the outlets in the system as opposed to those that elect to franchise a higher proportion of their outlets. The finan4
Outlet Growth
We have argued above that risk management theory leads to the conclusions that franchisors will set their perception of an “efficient administrative distance” within which company outlets may be owned. Clearly, we do not know what this will be in any particular franchise. However, it seems reasonable to assume that the greater the proportion of company owned outlets in the system, the wider the administrative boundary drawn. As a consequence, growth rates may be constrained. Alternatively, under the information asymmetry environment already outlined above, a large percentage of corporate owned outlets can be used as a signal to the capital markets at large that a superior concept has been developed, and the financial markets themselves remove the financial constraint on growth. Under this market signaling model, superior franchisors prefer to raise money in the public rather than through additional franchisees, with the inherent quality of the concept outweighing the administrative inefficiencies in corporate owned stores. Our argument suggests that the system will be more
AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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EXHIBIT 1
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Sample Publicly-Listed Franchise Companies
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E X H I B I T 1 (Continued)
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Sample Publicly-Listed Franchise Companies
attractive to potential franchisees if up-front fees and royalty fees are low, facilitating system growth. Under a signaling arrangement, though, one would expect to observe an inverse relationship between franchise and royalty fees and system growth: good concepts would signal quality by lowering their franchise fees and transferring their profit sharing scheme to sales-dependent royalty rates. This effect may be mitigated by the larger reliance on 6
public capital markets instead of franchisees to finance the system growth. In other words, a positive relationship between system growth and company owned stores may also render the signs on franchise fees and royalties difficult to interpret. Beyond this, there are other ways in which the franchisors can provide incentive to the potential franchisee to join. Lower contractually required advertising fees may facilitate access to the franchise system (the
AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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Data Collected
Independent Variables
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Data was drawn from the franchise company’s Uniform Franchise Offering Circular (UFOC), corporate 10K report, and the Entrepreneur magazine “Franchise 500” (1990-2000) listings. Each of the public franchisor shareholder relations offices was contacted directly by telephone to corroborate data. From this process, 140 pub-
EXHIBIT 3
Mean
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Franchisor Performance Positive/Negative Positive Positive Positive/Negative Positive Positive Positive/Negative* Positive
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*We have included this variable since it is clear that absolute size will affect the visibility of the franchise and thus, possibly, its attractiveness.
licly quoted companies were identified as having their primary source of income in business format franchising. Using triangulation methods, consistent, reliable data on franchise performance from at least two sources was obtainable for 91 companies.2 These form the sample for the study and are listed by state of origin and by line of business in Exhibit 1. For each public franchisor, data was collected on monthly total returns (dividend plus capital gains) for each month between January 1990 and December 1999 from the CRSP tapes and Compustat. Similar return variables were collected for the Standard and Poor’s 500 Index. Firm-specific information was collected from various industry sources.
S.D.
Range
26.4%
0-88.1%
% outlets franchised
74.25%
12.1%-100%
Franchise fee
$28,559
$17,129
Royalty rate
5.58%
5.38%
2%-12%
Advertising fee
3.84%
2.29%
0-15%
13.79 years
5.6 years
5-20 years
2,652
1,657
104-13,604
8.9 years
10.3 years
.5-44 years
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% outlets owned
Term of the contract Total # of outlets Tenure of the CEO
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Variable Percent of outlets owned Percent of outlets franchised Royalty rate Franchise fee Advertising fees Term of contract Total number of outlets Tenure of the CEO
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METHODOLOGY
EXHIBIT 2 NEED TITLE
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access cost argument) but may also hamper the development of the system as a whole by limiting the potential for large-scale advertising and brand building (the brand leverage argument). Longer periods for the franchise agreements can similarly affect system growth in two distinct fashions. First of all, longer contracts are clearly desirable by potential franchisees and may increase the desirability of the franchise. On the other hand, longer contracts can also hamper the franchisor’s ability to restructure the organization, removing suboptimal performers and bringing in better franchisees. Franchisees differ greatly in their ability to leverage the franchise concept for the common benefit of franchisee and franchisor: longer contracts may slow the dynamic optimization of the system as a whole. The expected direction in our model is summarized in Exhibit 2.1 Hypothesis 3: Key independent variables drawn from the franchise agreement are predictors of public franchisor wealth creating potential.
$5,000-$122,500
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EXHIBIT 4 Franchisor Market Performance, 1990-1999
500.0
400.0
Jul-99
Jan-99
Jul-98
Jan-97
Jul-96
Jan-96
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Jan-95
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Jul-94
Jan-94
Jul-93
Jan-93
Jul-92
Jan-92
Jul-91
Jan-91
0.0
Jul-90
100.0
Jan-98
200.0
Jul-97
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300.0
Jan-90
Performance Index (Base 100=1/1/1990)
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Month-Year Franchisor Index (Base 100=1/1/90)
S&P500 Index (Base 100=1/1/90)
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Plot of the cumulative returns on the Franchisor index and the corresponding S&P 500 index return, from base 100 set at January 1, 1987. The returns for both indices are unadjusted for risk.
FINDINGS
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Seven independent variables are extracted from the literature and compiled for the 91 public franchisors in our database. The presidents of nine public franchisors were interviewed to inform the theoretical perspective. These presidents added one independent variable, the tenure of the CEO, for which data was collected.
Descriptive Statistics
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Thirty-five companies were restaurants and a further three were pizzerias. The remaining companies operated in a wide range of industries. These companies were an average of 21.1 years old. Dairy Queen is the oldest public franchisor, reporting 55 years of franchising. There are a total of 241,333 outlets represented by the public franchisors in our sample. Hypothesis 1: Public franchisors will outperform a reference portfolio of stocks. Hypothesis 1 receives qualified support. For the period studied, an index of the performance of the 91 companies in the sample was constructed using the same weights as those for the Standard and Poor’s 500 8
Index (S&P 500). This is shown in Exhibit 4 along with the S&P 500 for the same period. For comparison purposes, both indices have been set at a base of 100 on January 1, 1990.3 For the period January 1990 through January 1991 the indices exhibited statistically identical performance. However, for the period January 1991 through July 1997 the franchisor index had its greatest comparative advantage in total return to shareholder, gaining a mean annual return of 14.8% compounded. By comparison, the S&P 500 index 12% compounded annually. The difference, or 2.8% annually, is statistically different from zero, with a t-statistic of 1.81 significant at the 5% level. However, for the remaining period of analysis the S&P outperformed the Public Franchisor Index, eliminating all of the public franchisor’s previous advantage. Hypothesis 2: Public franchisors will have a systematic risk coefficient equal to the market average of 1.0. Hypothesis 2 is supported. The distribution of systematic risk is shown in Exhibit 5. It was measured with respect to the same S&P 500 index used in Exhibit 4 and using 60 monthly returns.4 The mean beta is 1.15 and not significantly different from 1.00 at a 5% level of confidence. The median beta is 1.01 with a variance of 0.77.
AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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EXHIBIT 5
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have a greater chance at providing superior returns to shareholders. While at first glance this may appear to be collinear with the total number of franchisees, it is more appropriately interpreted as individual unit sales volume being a predictor of value.
CONCLUSIONS
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Hypothesis 3: Key independent variables drawn from the franchise agreement are predictors of public franchisor wealth creating potential. Hypothesis 3 has qualified support. We used Chi-Square Automatic Interaction Detector (CHAID) decision tree to model shareholder return (see Exhibit 6). CHAID analysis performs segmentation modeling and is useful in any situation in which the goal is to divide a population into segments that differ with respect to a designated criterion (Norusis [1989]). In this study the criterion is the dependent shareholder return variable. The 91 public franchisors are divided into two groups, those performing above the mean and those performing below the mean total shareholder return. CHAID divides a population into two or more distinct groups based on categories of the best predictor of the dependent variable. It then splits each of these groups into smaller subgroups based on other predictor variables. This splitting process continues until no further statistically significant predictors can be found. The segments that are derived by CHAID analysis are mutually exclusive and exhaustive. The segments do not overlap and each case is contained in only one segment. We display these segments in the form of a tree diagram whose branches, or nodes, correspond to the groups. Forty-four companies performed above the mean and 47 performed below the mean. Size in terms of number of franchises is the distinguishing variable at a 5% level of confidence and a chisquare of 4.0224. However, CHAID further segments the “smaller” public franchisors by the tenure of the CEO. 82.61% of the public franchisors with CEO in place for less than five years are underperformers. Additional segmentation reveals that smaller companies with higher sales
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Franchisors’ Systematic Risk (Beta) Distribution, 1990-1999
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This research effort represents a first formal investigation of the behavior and performance of public franchisors in the United States. Our aim was to gain an understanding of some of the factors determining system growth and market performance of this particularly visible subset of the franchisor universe. The representative sample of 91 public franchisors analyzed over the period extending from January 1, 1990, to December 31, 1999, seems to have outperformed the market as a whole for significant periods while carrying very similar average risk levels. However, underperformance versus the S&P 500 in the last two years of the study is also a significant finding. In retrospect, the “irrational exuberance” of the period may be the determining variable of S&P 500 performance. We speculate that the rapid growth opportunity represented by franchising paled in comparison to the (now unfulfilled) promise of the Internet. Our plan is to extend the period of the study that will clearly test this speculation. The extended period of overperformance with the same systematic risk appears to offer an opportunity to exceed market return. This is especially true for the overperforming subset of franchisors. There is an interesting opportunity to further analyze this important subset of public franchisors. Likewise, our CHAID model of the segmented public franchisor population provides further THE JOURNAL OF PRIVATE EQUITY
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EXHIBIT 6 NEED TITLE PROFIT Cat. % n y 48.35 44 n 51.65 47 Total (100.00) 91
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# Franchises P-value = 0.0449, Chi-square = 4.0224, df = 1 [1,452]
(452,81603]
Cat. % n y 63.33 19 n 36.67 11 Total (32.97) 30
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Cat. % n y 40.98 25 n 59.02 36 Total (67.03) 61
# yrs. CEO P-value = 0.0285, Chi-square = 8.4963, df = 1
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Cat. % n y 17.39 4 n 82.61 19 Total (25.27) 23
[0,260]
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# Company P-value = 0.0359, Chi-square = 8.0735, df = 1
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Cat. % n y 60.00 3 n 40.00 2 Total (5.49) 5
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motivation for further study. The number of franchises is an interesting proxy for specific system size and clearly validates the promise that growth is a valuable strategy in franchising. Further segmentation indicates that smaller systems which have superior unit economics as illustrated by revenue generation and which have stable executive leadership, still have an excellent chance at above-average return to shareholders. ENDNOTES 1
These variables are common franchise contractual parameters (Achrol and Etzel [1990]). 2 We segmented the data into two sets (restaurants and non-restaurants) to test variance in the means of variables. t ,
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Cat. % n y 55.26 21 n 44.74 17 Total (41.76) 38
System Sales P-value = 0.0266, Chi-square = 8.6218, df = 1
[260,19164]
Cat. % n y 5.56 1 n 94.44 17 Total (19.78) 18
(5,44]
[0,106.7] Cat. % n y 31.58 6 n 68.42 13 Total (20.88) 19
[106.7,17420] Cat. % n y 78.95 15 n 21.05 4 Total (20.88) 19
p < .01; two model variable means were statistically the same between data sets; royalty and franchise fee which were different at the .01 level of significance. While this is interesting and provides direction for further research, the percentage of restaurants in our database is representative of the universe of public franchisors. As examined on www.bison1.com, 40% of the publicly traded franchises were restaurants. 3 As is common in this literature, monthly portfolio rebalancing is assumed in both indices. 4 When less than 60 returns were available but more than 24, betas were calculated on the number of months at hand. When less than 24 months were available, systematic risks were reported as not available. This procedure is in line with the standards adopted by Value Line and Morningstar for reporting betas.
AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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——. “The Firm as an Incentive System.” The American Economic Review, Vol. 84, No. 4 (1994), pp. 972-991.
Brickley, J.A., F.H. Dark, and M.S. Weisbach. “An Agency Perspective on Franchising.” Financial Management, Vol. 20, No. 1 (1991), pp. 27-35. Carney, M., and E. Gedajlovic. “Vertical Integration the Franchise Systems: Agency Theory and Resource Explanations.” Strategic Management Journal, 12 (1991), pp. 572-586. Castrogiovanni, G.J., N. Bennett, and J.G. Combs. “Franchisor Types: Reexamination and Clarification.” Journal of Small Business Management, Vol. 33, No. 1 (1995), pp. 45-55.
Kreps, D., and R. Wilson. “Reputation and Imperfect Information.” Journal of Economic Theory, 27 (1982), pp. 253-279. Krueger, A. “Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry.” Quarterly Journal of Economics, 106 (1991), pp. 75-101. Laffont, J.J. The Economics of Uncertainty and Information. Cambridge, MA: The MIT Press, 1989. LaFontaine, F. “Agency Theory and Franchising: Some Empirical Results.” Rand Journal of Economics, Vol. 23, No. 2 (1992), pp. 263-283.
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Caves, R.E., and W.F. Murphy. “Franchising: Firms, Markets, and Intangible Assets.” Southern Economics Journal, 42 (1976), pp. 572-586.
Kaufman, P.J., and R.P. Dant. “Multi-Unit Franchising: Growth and Management Issues.” Journal of Business Venturing, Vol. 11, No. 5 (1996), pp. 343-358.
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Akerlof, G.A. “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics, 84 (1970), pp. 488-500.
Huszaugh, S.M., F.W. Huszaugh, and F. McIntyre. “International Franchising in Context of Competitive Strategy and the Theory of the Firm.” International Marketing Review, Vol. 9, No. 5 (1992), pp. 5-18.
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Achrol, R.S., and M.J. Etzel. “Enhancing the Effectiveness of Franchise Systems: Franchisee Goals and Franchisor Services.” Frontiers of Entrepreneurship Research, Babson College, MA, 1990.
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REFERENCES
LaFontaine, F., and P.J. Kaufmann. “The Evolution of Ownership Patterns in Franchise Systems.” Journal of Retailing, Vol. 70, No. 2 (1994), pp. 97-113.
Fama, F.E., and M.C. Jensen. “Separation of Ownership and Control.” Journal of Law and Economics, Vol. 26, No. 3 (1983a), pp. 301-326.
Lerner, J. “Venture Capitalists and the Oversight of Private Firms.” Journal of Finance, Vol. 50, No. 1 (1995), pp. 301-318.
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Dant, R.P. “Motivations for Franchising: Rhetoric vs Reality.” International Small Business Journal, Vol. 14, No. 1 (1995), pp. 10-32.
——. “Agency Problems and Residual Claims.” Journal of Law and Economics, Vol. 26, No. 3 (1983b), pp. 327-349.
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AN ANALYSIS OF SHAREHOLDER RETURN IN PUBLIC FRANCHISOR COMPANIES
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