Targeting Managerial Control: Evidence from Franchising
Francine Lafontaine () and
No 8416, NBER Working Papers from National Bureau of Economic Research, Inc
Using an extensive longitudinal data set on franchising firms, we show that established franchisors manage their portfolio of company and franchised units to maintain a particular target level of corporate control and ownership of outlets. On average, established franchisors maintain about 15 percent of their outlets as company owned - with the other 85 percent owned by franchisees. Interestingly, the rate of company ownership does not rise or fall within firms as they gain experience or learn, or as they succeed or fail. However, the targeted rate does vary considerably across firms: firm-specific fixed effects explain 90 percent of the variance of company ownership rates in our longitudinal data. Given strong evidence that firms target specific, but different, rates of company ownership, what factors determine firms' optimal targeted rates? We find that brandname value is an important determinant: franchisors with high brandname value, as measured by advertising fees or major media expenditures, target high rates of company ownership. We argue that targeting high rates of company ownership is desirable in chains with more valuable brands because individual franchisees have incentives to free ride on brandname value. Consequently, high-value franchisors need to exert more direct managerial control over outlets in their chain. In addition, high company ownership rates give franchisors better incentives to maintain the value of their brand.
JEL-codes: L2 J4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Published as Lafontaine, Francine and Kathryn L. Shaw. "Targeting Managerial Control: Evidence From Franchising," Rand Journal of Economics, 2005, v36(1,Spring), 131-150.
Downloads: (external link)
Journal Article: Targeting Managerial Control: Evidence from Franchising (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8416
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().