Family versus Non‐Family Firm Franchisors: Behavioural and Performance Differences

• Date: 01 January 2021
• Published date: 01 January 2021
• Author: R. Duane Ireland,Dianne H. B. Welsh,Francesco Chirico,Philipp Sieger
• DOI: http://doi.org/10.1111/joms.12567

© 2020 The Authors. Journal of Management Studies published by Society for the Advancement of Management

Studies and John Wiley & Sons, Ltd.

Family versus Non-Family Firm Franchisors:

Behavioural and Performance Differences

Francesco Chiricoa,b, Dianne H. B. Welshc,

R. Duane Irelandd and Philipp Siegere

aMacquarie University; bJönköping University; cThe University of North Carolina at Greensboro;

dTexas A&M University; e University of Bern

ABSTRACT Drawing from resource-based theory, we argue that family firm franchisors behave

and perform differently compared to non-family firm franchisors. Our theorizing suggests that

compared to a non-family firm franchisor, a family firm franchisor cultivates stronger relation-

ships with franchisees and provides them with more training. Yet, we predict that a family firm

franchisor achieves lower performance than a non-family firm franchisor. We argue, however,

that this performance relationship reverses itself when family fir m franchisors are older and

larger. We test our hypotheses with a longitudinal dataset including a matched-pair sample of

private U.S. family and non-family firm franchisors.

Keywords: corporate entrepreneurship, family firm, franchising, performance, relationships,

training

INTRODUCTION

Franchising is acknowledged widely as a major worldwide driver of entrepreneurial

activity, enabling firms to grow and succeed by producing or distributing goods or

services (Combs et al., 2004, 2011b). Franchising involves the process of franchisors

granting a franchisee and/or multiple-unit franchisees the right to market their branded

goods or services as well as use their business practices and procedures (Combs et al.,

2004). As such, franchising constitutes a form of corporate entrepreneurship, and more

specifically, a type of ‘external corporate venturing’ where an existing organization

creates ‘semi-autonomous or autonomous organizational entities that reside outside the

existing organizational domain’ (Sharma and Chrisman, 1999, p. 19) (see also Ellis and

Taylor, 1987; von Hippel, 1977).

Journal of Man agement Studi es 58:1 Januar y 2021

doi:10. 1111/j om s. 125 67

Address for reprints: Francesco Chirico, Department of Management, Macquarie Business School – Macquarie

University, 4 Eastern Road, NSW 2109, Sydney, Australia (francesco.chirico@mq.edu.au).

This is an open access article under the terms of the Creat ive Commo ns Attri bution License, which per-

mits use, distribution and reproduction in any medium, provided the original work is properly cited.

166 F. Chirico et al.

© 2020 The Authors. Journal of Management Studies published by Society for the Advancement of Management

Studies and John Wiley & Sons, Ltd.

Interestingly, family firms – organizations that are owned and managed by a family

(Chirico et al., 2019; Miller et al., 2007) are the dominant organizational form through-

out the global economy (see Gedajlovic et al., 2012; Neckebrouck et al., 2018; Schulze

and Gedajlovic, 2010). These firms participate actively in franchising (Wadsworth and

Jackson, 2004). Recent discussions highlight the significance of family firms in the fran-

chising industry (Welsh and Hoy, 2017); several studies support this notion as well (e.g.,

Armitage and Wolfe, 2009; ICED, 2010; Rowlinson, 2010; Welsh and Raven, 2011).

However, only a limited amount of research focuses on franchising as an entrepreneurial

activity in family firms (e.g., Chirico et al., 2011a; Kaufmann, 1999; Welsh and Raven,

2011). Given entrepreneurship’s importance to efforts to develop countries and regions’

economies, this core issue warrants additional attention. For example, comparing fran-

chising in family versus non-family firms has the potential to enhance our understanding

of whether, how, and under what conditions these organizational forms differ in terms

of behaviours and performance in franchising as a key entrepreneurial activity (Ketchen

et al., 2011).

Scholars use various theoretical perspectives to study franchising (see Combs et al.,

2011b, 2011c); however, the resource-based view is key to efforts to explain the fran-

chising phenomenon in general and franchising behaviours and performance in partic-

ular (Castrogiovanni et al., 2006a; Combs and Ketchen, 1999b; Combs et al., 2011b).

Importantly, the resource-based view suggests that franchising behaviours and perfor-

mance outcomes should differ considerably between family firms and non-family firms.

This is because a main feature that distinguishes family firms from non-family firms is

their distinctive bundles of resources that emerge through the interaction between the

family and the business systems (Eddleston et al., 2008; Habbershon et al., 2003; Sirmon

and Hitt, 2003). Unique resource bundles, in turn, have important implications for

franchising (Combs et al., 2011c), as sharing unique, yet, complementary resources be-

tween the franchisor and the franchisee is a core element of franchising, leading to joint

value-creating benefits (Combs and Ketchen, 1999b; Ketchen et al., 2007).

Drawing from the resource-based view of the firm, we theorize that family firm fran-

chisors behave and perform differently compared to non-family firm franchisors. In terms

of behaviour, we argue that a family firm franchisor establishes stronger relationships

with franchisees and provides them with more training. We focus on these two facets of

franchising as these are essential aspects of how to share resources and create value in

franchising (Chirico et al., 2011a; Combs and Ketchen, 1999b; Ketchen et al., 2007).

Strong relationships facilitate resource sharing (Chrisman et al., 2009) and allow superior

information exchange (Baucus et al., 1996; Dant and Nasr, 1998). As such, strong rela-

tionships can enable collaborating parties to form and use resources that have strategic

value (Dyer and Singh, 1998). In addition, providing training to franchisees is a useful

tool to familiarize them with the franchisor’s procedures, operations, best practices, and

management approaches (Gillis et al., 2014). As a result, training for franchisees consti-

tutes an important learning opportunity where the trainees can develop and enhance

their skills and capabilities (Miller et al., 2008). Given these expectations, extant fran-

chising literature has investigated the strength of the franchisor-franchisee relationship

(e.g., Chirico et al., 2011a; Davies et al., 2011) and training activities (e.g., El Akremi

Family versus Non-Family Firm Franchisors 167

© 2020 The Authors. Journal of Management Studies published by Society for the Advancement of Management

Studies and John Wiley & Sons, Ltd.

et al., 2015; Gorovaia and Windsperger, 2013) to explain the franchising phenomena

and related outcomes. With respect to performance, we theorize that family firm fran-

chisors achieve a lower level of performance than non-family firm franchisors; however,

we expect a reversal of this outcome when family firm franchisors are older and larger.

Empirically, we rely on secondary data from FRANdata, which is a reliable source of

objective information regarding franchise operations in the United States. Information

is extracted directly from federal Franchise Disclosure Documents (FDDs). Our analysis

of a longitudinal matched-pair sample of U.S. family- and non-family firm franchisors

generally confirms our theoretical expectations.

Our results yield several contributions. First, we contribute to the corporate entrepre-

neurship literature. On a general level, we demonstrate that franchising is a relevant and

unique type of corporate entrepreneurship (see Ketchen et al., 2011; Ucbasaran et al.,

2001) in the form of external corporate venturing (Sharma and Chrisman, 1999). On a

more specific level, we advance the literature concerned with corporate entrepreneur-

ship in family firms (see McKelvie et al., 2014). By focusing on family firms as a specific

context (Davidsson et al., 2001), we enhance our understanding of differences in entre-

preneurial behaviour between family and non-family firm franchisors and shed light on

key contingency factors that affect performance. As such, we enrich the discussion about

whether family firms are more or less entrepreneurial than non-family firms (Eddleston

et al., 2012; Randolph et al., 2017) and how this relates to performance differences

(Miller and LeBreton-Miller, 2006; Villalonga and Amit, 2006). In addition, we advance

our understanding of whether (or not) the family firm’s commitment to entrepreneurial

actions, such as franchising, erodes over time and with advances in firm size (Barringer

and Bluedorn, 1999; Naldi et al., 2007).

Second, we contribute to the small but expanding body of research concerned with

franchising within family firms. Drawing from resource-based arguments, we develop

novel theorizing to predict the behavioural and performance-related implications of

being a family firm franchisor in a franchising context. This allows us to better under-

stand the franchising phenomenon and to isolate the related theoretical reasons for dif-

ferences in franchising behaviours and performance among franchisors. Additionally,

our theorizing facilitates the field’s efforts to understand previous contradicting theoret-

ical arguments and results regarding the effects of firm age and size on franchisor out-

comes (e.g., Castrogiovanni et al., 1993, 2006b; Combs and Ketchen, 2003).

THEORETICAL FOUNDATIONS

Franchising as a Form of Corporate Entrepreneurship

Generally, franchising is understood as a long-term business arrangement wherein one

firm (the franchisor) grants the right to market goods or services under its brand name

and to use its business practices, processes, and routines to another firm (the franchisee)

(Combs et al., 2004, 2009, 2011b). The franchisee, in turn, leverages its idiosyncratic

knowledge of the local environment resource, including competitors’ activities, and