infonet-economy

Franchising is an important form of organizational control. Possible benefits of franchising include its ability to reduce agency costs that increase with costly monitoring , and provide incentives for the use of local information by onsite managers . However, these benefits may come at a cost, as franchisees may reduce quality by choosing to free ride . While many studies have investigated the reasons for franchising, few studie s have documented the impacts of franchising on unit level operating performance . Using time - series data from a number of lodging properties that were converted to franchisee control from company control, this study documents the performance impacts of fra nchising. The analysis reveals that conversion results in a modest decline in financial performance and an immediate sharp decline in quality.