AN EXPLANATION OF INTERNATIONAL FRANCHISORS' PREFERENCE FOR MULTI-UNIT FRANCHISING

Abstract

Most international franchisors seem to follow multi-unit franchising. But it is often treated as an anomaly from an agency theory perspective. We argue that multi-unit franchising can be explained by agency theory, if we consider the full range of agency problems. These include: shirking, adverse selection, information flow, inefficient risk bearing, free-riding, and quasi-rent appropriation. Although past agency theoretic examinations have mostly focused on single-unit franchising, our analysis shows that in the international context, multi-unit franchising may be more appropriate considering the significant geographic and cultural distance between franchisors and franchisees.