Strategic and Contractual Dynamics in Franchise Systems: An Analysis on Spanish Food and Beverage Industry

Abstract

This study aims to address strategic and contractual dynamics of franchising, in consideration of arguments of transaction cost theory and agency theory. By using pooled cross-sectional data on a sample of Spanish food and beverage franchise systems of year 2021, gathered from Guia de Franquicias manual, exploratory analyses on the effect of franchisors' age and total size on their proportion of franchised units are conducted as a first step. Furthermore, the effects of characteristics of a franchise system -its age, total size, origin country and proportion of franchised units, on its franchising contract's financial determinantslevel of initial investment, entry fee, royalty rate and advertising rate, are hypothesized and analyzed. Proportion of franchised units' correlations with both age and total size characteristics are found to be inverse U-shaped. By applying multiple regression method, it is shown that none of franchising characteristics, age, total size, being foreign and its proportion of franchised units, play a significant role on level of royalty rates, but their effects on rates are significant, except total size. Moreover, it is proven that being a foreign franchisor also has a positive effect on the levels of initial investment and entry fee.