Presenters: Anna Vincent ; Anna Schiffmann
Authors: Anna Schiffmann, Harsh Soni
Faculty Advisor: Yang Huo
Institution: Utah Valley University
According to the Korea Fair Trade Commission (2021), more than 95% chain units are operated under franchised operations and observers project the percentage will soon exceed 97%. Because chain units are increasing in popularity, it’s essential to understand the success between franchisees and franchisors. However, a fundamental issues in franchising is sustainable relationships between interfirm organizations, in its effort to meet a goal of operation and enhance financial performance to maximize shareholders wealth. The aim of this study is to empirically address the degree of franchisees’ perception on franchised units’ profit performance by analyzing the perspectives of governance, trust, and transaction costs. The types and degree of franchisor’s governance will be proposed as a measure to prevent opportunistic behavior and increase profit performance. We will argue that trust is correlated with a greater governance mechanism and operational procurement because it has a mutually causal relationship with information sharing and profit performance. We will discuss the franchisee’s investments in specific assets that influence profit performance. Trust also has a competitive advantage in an environmentally uncertain situation (e.g., Covid-19) and is a knowledge base for specifying more detailed contracts. We support our claims with a unique dataset of 350 franchised units out of the 1,360 restaurant chains in Busan, Korea. We investigate the relationship between franchisees and franchisors by measuring franchisees’ perception in conjunction with franchisor’s governance, trust, opportunistic behavior and their impact on financial performance and test our hypotheses. We also run a regression model between these variables. Our findings indicate perceived trust through franchisor’s governance on the contract reduces franchisees’ opportunistic behavior and reduces transaction costs and is correlated with greater financial performance. Our research will benefit franchisors and franchisees by adding to the insightful interfirm collaboration to build trust and maximize trust value.