Entitlement Constraints on Franchise Systems: Evidence from System Acquisitions

Nicholas Argyres (), Janet Bercovitz () and Hugo Leenders ()
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Nicholas Argyres: Olin School of Business, Washington University in St. Louis, St. Louis, Missouri 63130
Janet Bercovitz: Leeds College of Business, University of Colorado Boulder, Boulder, Colorado 80309
Hugo Leenders: Leeds College of Business, University of Colorado Boulder, Boulder, Colorado 80309

Strategy Science, 2025, vol. 10, issue 2, 166-184

Abstract: It has long been argued that acquisitions can enable new owners to make changes to target firms that target owners could not make due to implicit commitments to the target’s stakeholders. The empirical evidence for this idea has been thin, however. We develop evidence for it in data on acquisitions of entire franchise systems. We show that acquisition of these systems tends to result in higher royalty fees, especially in systems in which “entitlement constraints” bind more tightly, namely where multiunit franchising is emphasized and where franchise units are older. The implication is that relieving entitlement constraints may be an important motive for, or at least an additional benefit of, some acquisitions.

Keywords: mergers and acquisitions; organizational economics; governance and control (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:10:y:2025:i:2:p:166-184

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