The relative importance of different agency problems in organizing economic activity: An investigation of multiple forms within

"Due to profound impact on issues such as managerial capacity and control over resources, choices of organizational forms affect firm growth and survival. Such decisions of strategic importance, therefore, should be closely tied-in with emphases firms place on different goals. The current study investigated the link between multiple franchisor goals and different forms of franchising. In establishing that link, arguments centered on dimensionality of agency problems and multiple levels of agents inherent in most agency relationships. Although far more prevalent than the stylized single-unit franchising (SUF), multi-unit franchising (MUF) has remained an anomaly. This study extends the existing explanations for the prevalence of MUF. It was argued that when franchisors emphasize different goals, different agency problems become salient, in turn driving choice of franchising form. Logistic regression analysis was conducted on a combination of archival and key informant reported perceptual data from a multi-industry sample of 97 franchisors. Franchisors' intent to use MUF versus SUF was predicted. In addition, within MUF, franchisors' intent to use area development franchising (ADF) versus incremental franchising (IF) was also predicted. Results suggested that whereas growth-seeking franchisors are more likely to use MUF, other franchisor goals are also relevant to the choice of franchising form. Specifically, some support was obtained in this data for the hypothesis that franchisors emphasizing local responsiveness tend to differentiate between ADF and IF, although both are forms of MUF. They are likely to use IF, but not ADF. Overall, three out of the six hypotheses tested were supported. Thus, moderate evidence was found for the agency theoretic explanations of the relationship between franchisor goal emphases and the choice of franchising form. By simultaneously drawing attention on (A) multiplicity of principal goals, (B) dimensionality of agency problems, and (C) multiple levels of agents, this study has tried to advance (a) franchising research, (b) agency theory, and (c) franchising practice. Further, agency theoretic insights of this study can be fruitfully combined with other theories such as social control theory in explaining firm growth and survival."