Antecedents and consequences of external risk perception in franchising: evidence from the hospitality industry

Abstract

In this article, we contribute to the understanding of the role that external risk perceptions play in decisions regarding the combination of companyowned and franchised units in the hospitality industry, and to knowledge of the impact of specific CEO characteristics on perceptions of environmental uncertainty. We examine the effects of tenure, an entrepreneurial nature and the innovative attitude of the CEO on the perception of external risk, and address the direct and indirect consequences of such perceptions of external risk on the configuration of the network of outlets. Our results show a significant relationship between the characteristics of the CEO and the perception of risk but, contrary to expectations, risk perception is associated with a lower degree of franchised outlets within the ownership mix.

Knowledge Heterogenization of the Franchising Literature Applying Transaction Cost Economics

“…Caves and Murphy (1976) 1 (Minkler and Park 1994) 7 (Bronson and Morgan 1998;Burton et al 2000;Contractor and Kundu 1998a;Dimou et al 2003;Fladmoe-Lindquist and Jacque 1995;Michael 2000;Sashi and Karuppur 2002) 5 (Hoffman et al 2016;Jell-Ojobor and Windsperger 2014;Safón and Escribá-Esteve 2011;Solis-Rodriguez and Gonzalez-Diaz 2012;Windsperger and Dant 2006) 13 5.99% Norton (1988) 9 (Bronson and Morgan 1998;Burton et al 2000;Dimou et al 2003;Fladmoe-Lindquist and Jacque 1995;Gassenheimer et al 1996;Hutchinson 1999;Michael 2000;Sashi and Karuppur 2002;Stanworth and Curran 1999) 5 (Argyres and Bercovitz 2015;Chen and Dimou 2005;Hussain et al 2013;Jell-Ojobor and Windsperger 2014;Windsperger and Dant 2006) 14 6.45% Year 1975Year -1984Year 1985Year -1994Year 1995Year -2004Year 2005Year -2016…”

“…Anderson and Gatignon (1986) 6 (Burton et al 2000;Contractor and Kundu 1998b;Dimou et al 2003;Erramilli et al 2002;Fladmoe-Lindquist and Jacque 1995;Sashi and Karuppur 2002)] 5 (Chen and Dimou 2005;Dev et al 2007;Jell-Ojobor and Windsperger 2014;Mumdziev and Windsperger 2013;Safón and Escribá-Esteve 2011) 5.07%…”

The bright side and dark side of trust: The mediating effect of franchisor trust on performance

“…In this case, the franchisor has to set up a more complex coordination and control system with a higher information processing capacity (Haleblian & Finkelstein, ). For example, Safón and Escribá‐Esteve () show that uncertain external conditions force franchise managers to allocate more resources to reducing environmental uncertainty. We thus expect that environmental uncertainty negatively influences the performance of the franchise system.Hypothesis Environmental uncertainty has a negative effect on performance of franchise firms. Environmental uncertainty and the “dark side” of trust …”

Risk-Sharing as a Long-Term Motivation to Franchise: Role of Franchising Experience

“…Because of the fixed compensation for managers, difficulty arises for firms' attempts to induce managers' best efforts, and consequently firms expend monitoring costs to ensure managers operate in the firms' interest. This agency problem is likely to be more serious for restaurants since consumption and production are inseparable and on-site service is critical for successful business (Carman & Langeard, 1980;Safon & Escriba-Esteve, 2011). However, franchising contracts can help firms overcome this problem because franchisees and firms have common interests in efficiently managing oper-ations: Franchisees' income is a direct result of efficient management and determines earnings from operations.…”

“…Three features of restaurant firms characterize motivations for franchising: (a) restaurant firms are generally small or mid-sized (Hsu et al, 2010); (b) the restaurant industry is characteristically risky (Slattery & Olsen, 1984) and the assumption is that restaurant managers are risk-averse in general; and (c) centralizing production systems and ensuring essential onsite customer service is difficult for restaurant firms (Safon & Escriba-Esteve, 2011). Considering these characteristics of the restaurant industry, the agency theory, the resource scarcity theory, and risk-sharing theory appear to effectively explain restaurant firms' motivations to franchise.…”