An Explanation of International Franchisors' Preference for Multi-Unit Franchising
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.
Garg, Vinay K., and Abdul A. Rasheed. "An Explanation of International Franchisors' Preference for Multi-Unit Franchising." International Journal of Entrepreneurship 10 (2006).
Management and Information Technology