IDEAS home Printed from https://ideas.repec.org/a/eee/jouret/v94y2018i2p231-245.html
   My bibliography  Save this article

Family Ties that B(l)ind: Do Family-Owned Franchisees Have Lower Financial Performance than Nonfamily-Owned Franchisees?

Author

Listed:
  • Patel, Pankaj C.
  • Kim, Kyoung Yong
  • Devaraj, Srikant
  • Li, Mingxiang

Abstract

Over the past three decades, franchisee performance has attracted the attention of scholars in both retailing and entrepreneurship. However, to date, research has not investigated whether the type of franchisee ownership influences franchisee financial performance. Family ownership, the most dominant form of firm organization worldwide, ingrains greater focus on noneconomic goals that could, in turn, reduce the financial performance of a family-owned franchisee. Drawing on the tenets of agency theory undergirding the franchising and family business literature, we examine whether family-owned franchisees have lower financial performance than nonfamily-owned franchisees. Using data from the 2007 Small Business Owner survey and propensity score matching, we observed that family franchisees generated at least 6.7% lower sales per employee than nonfamily franchisees. The inferences are consistent across two additional samples and robust to additional performance outcomes and specifications. Overall, this research provides a novel empirical examination of the influence of family ownership on franchisee financial performance and has managerial implications for both franchisors and franchisees.

Suggested Citation

  • Patel, Pankaj C. & Kim, Kyoung Yong & Devaraj, Srikant & Li, Mingxiang, 2018. "Family Ties that B(l)ind: Do Family-Owned Franchisees Have Lower Financial Performance than Nonfamily-Owned Franchisees?," Journal of Retailing, Elsevier, vol. 94(2), pages 231-245.
    • Handle: RePEc:eee:jouret:v:94:y:2018:i:2:p:231-245
    DOI: 10.1016/j.jretai.2017.12.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022435917300970
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretai.2017.12.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rebel A. Cole & John D. Wolken, 1995. "Financial services used by small businesses: evidence from the 1993 National Survey of Small Business Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 629-667.
    2. Hsu, Liwu & Kaufmann, Patrick & Srinivasan, Shuba, 2017. "How Do Franchise Ownership Structure and Strategic Investment Emphasis Influence Stock Returns and Risks?," Journal of Retailing, Elsevier, vol. 93(3), pages 350-368.
    3. Martin R.W. Hiebl, 2012. "Risk aversion in family firms: what do we really know?," Journal of Risk Finance, Emerald Group Publishing, vol. 14(1), pages 49-70, December.
    4. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    5. Anderson, Ronald C. & Duru, Augustine & Reeb, David M., 2009. "Founders, heirs, and corporate opacity in the United States," Journal of Financial Economics, Elsevier, vol. 92(2), pages 205-222, May.
    6. Dant, Rajiv P. & Grünhagen, Marko & Windsperger, Josef, 2011. "Franchising Research Frontiers for the Twenty-First Century," Journal of Retailing, Elsevier, vol. 87(3), pages 253-268.
    7. Magda Bianco & Maria Bontempi & Roberto Golinelli & Giuseppe Parigi, 2013. "Family firms’ investments, uncertainty and opacity," Small Business Economics, Springer, vol. 40(4), pages 1035-1058, May.
    8. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    9. Tim Barnett & Franz W. Kellermanns, 2006. "Are We Family and Are We Treated as Family? Nonfamily Employees’ Perceptions of Justice in the Family Firm," Entrepreneurship Theory and Practice, , vol. 30(6), pages 837-854, November.
    10. Jess H. Chua & James J. Chrisman & Erich B. Bergiel, 2009. "An Agency Theoretic Analysis of the Professionalized Family Firm," Entrepreneurship Theory and Practice, , vol. 33(2), pages 355-372, March.
    11. Chabowski, Brian R. & Hult, G. Tomas M. & Mena, Jeannette A., 2011. "The Retailing Literature as a Basis for Franchising Research: Using Intellectual Structure to Advance Theory," Journal of Retailing, Elsevier, vol. 87(3), pages 269-284.
    12. Anderson, Ronald C. & Duru, Augustine & Reeb, David M., 2012. "Investment policy in family controlled firms," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1744-1758.
    13. Zellweger, Thomas M. & Eddleston, Kimberly A. & Kellermanns, Franz W., 2010. "Exploring the concept of familiness: Introducing family firm identity," Journal of Family Business Strategy, Elsevier, vol. 1(1), pages 54-63, March.
    14. Rajiv P. Dant & Rozenn Perrigot & Gérard Cliquet, 2008. "A cross-cultural comparison of the plural forms in franchise networks : United States, France, and Brazil," Post-Print halshs-00280723, HAL.
    15. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    16. Matias Busso & John DiNardo & Justin McCrary, 2014. "New Evidence on the Finite Sample Properties of Propensity Score Reweighting and Matching Estimators," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 885-897, December.
    17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    18. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    19. Debicki, Bart J. & Kellermanns, Franz W. & Chrisman, James J. & Pearson, Allison W. & Spencer, Barbara A., 2016. "Development of a socioemotional wealth importance (SEWi) scale for family firm research," Journal of Family Business Strategy, Elsevier, vol. 7(1), pages 47-57.
    20. Randall Morck & Bernard Yeung, 2003. "Agency Problems in Large Family Business Groups," Entrepreneurship Theory and Practice, , vol. 27(4), pages 367-382, October.
    21. Gary J. Castrogiovanni & James G. Combs & Robert T. Justis, 2006. "Shifting Imperatives: An Integrative View of Resource Scarcity and Agency Reasons for Franchising," Entrepreneurship Theory and Practice, , vol. 30(1), pages 23-40, January.
    22. James J. Chrisman & Jess H. Chua & Lloyd Steier, 2005. "Sources and Consequences of Distinctive Familiness: An Introduction," Entrepreneurship Theory and Practice, , vol. 29(3), pages 237-247, May.
    23. Danny Miller & Isabelle Le Breton-Miller & Richard H. Lester, 2013. "Family Firm Governance, Strategic Conformity, and Performance: Institutional vs. Strategic Perspectives," Organization Science, INFORMS, vol. 24(1), pages 189-209, February.
    24. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
    25. Alessandro Minichilli & Guido Corbetta & Ian C. MacMillan, 2010. "Top Management Teams in Family‐Controlled Companies: ‘Familiness’, ‘Faultlines’, and Their Impact on Financial Performance," Journal of Management Studies, Wiley Blackwell, vol. 47(2), pages 205-222, March.
    26. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    27. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    28. David G. Sirmon & Michael A. Hitt, 2003. "Managing Resources: Linking Unique Resources, Management, and Wealth Creation in Family Firms," Entrepreneurship Theory and Practice, , vol. 27(4), pages 339-358, October.
    29. Gonzalez-Diaz, Manuel & Solis-Rodriguez, Vanesa, 2012. "Why do entrepreneurs use franchising as a financial tool? An agency explanation," Journal of Business Venturing, Elsevier, vol. 27(3), pages 325-341.
    30. Marianne Bertrand & Antoinette Schoar, 2006. "The Role of Family in Family Firms," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 73-96, Spring.
    31. Berger, Allen N. & Goulding, William & Rice, Tara, 2014. "Do small businesses still prefer community banks?," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 264-278.
    32. Lozano, M. Belén & Martínez, Beatriz & Pindado, Julio, 2016. "Corporate governance, ownership and firm value: Drivers of ownership as a good corporate governance mechanism," International Business Review, Elsevier, vol. 25(6), pages 1333-1343.
    33. Chandra S. Mishra & Daniel L. Mcconaughy, 1999. "Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt," Entrepreneurship Theory and Practice, , vol. 23(4), pages 53-64, July.
    34. Kuan, Tsung-Han & Li, Chu-Shiu & Chu, Shin-Herng, 2011. "Cash holdings and corporate governance in family-controlled firms," Journal of Business Research, Elsevier, vol. 64(7), pages 757-764, July.
    35. Roberto Cafferata & Gianpaolo Abatecola & Sara Poggesi, 2009. "Revisiting Stinchcombe's 'liability of newness': a systematic literature review," International Journal of Globalisation and Small Business, Inderscience Enterprises Ltd, vol. 3(4), pages 374-392.
    36. repec:bla:jfinan:v:58:y:2003:i:3:p:1301-1327 is not listed on IDEAS
    37. Jean‐Luc Arregle & Michael A. Hitt & David G. Sirmon & Philippe Very, 2007. "The Development of Organizational Social Capital: Attributes of Family Firms," Journal of Management Studies, Wiley Blackwell, vol. 44(1), pages 73-95, January.
    38. Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 503-526, October.
    39. William S. Schulze & Michael H. Lubatkin & Richard N. Dino & Ann K. Buchholtz, 2001. "Agency Relationships in Family Firms: Theory and Evidence," Organization Science, INFORMS, vol. 12(2), pages 99-116, April.
    40. Alexander Guzmán & Belén Villalonga & María-Andrea Trujillo & Raphael Amit, 2015. "Governance of Family Firms," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 635-654, December.
    41. Jean-Luc Arrègle & Michael Hitt & David Sirmon & Philippe Véry, 2007. "The Development of Organizational Social Capital : Attributes of Family Firms," Post-Print hal-02312687, HAL.
    42. Madanoglu, Melih & Lee, Kyuho & Castrogiovanni, Gary J., 2011. "Franchising and firm financial performance among U.S. restaurants," Journal of Retailing, Elsevier, vol. 87(3), pages 406-417.
    43. Dildar Hussain & Rozenn Perrigot & Karim Mignonac & Asâad El Akremi & Olivier Herrbach, 2013. "Determinants of multi-unit franchising: an organizational economics framework," Post-Print halshs-00816128, HAL.
    44. James J. Chrisman & Esra Memili & Kaustav Misra, 2014. "Nonfamily Managers, Family Firms, and the Winner's Curse: The Influence of Noneconomic Goals and Bounded Rationality," Entrepreneurship Theory and Practice, , vol. 38(5), pages 1-25, September.
    45. Olav Sorenson & Jesper B. Sørensen, 2001. "Finding the right mix: franchising, organizational learning, and chain performance," Strategic Management Journal, Wiley Blackwell, vol. 22(6‐7), pages 713-724, June.
    46. Dildar Hussain & Rozenn Perrigot & Karim Mignonac & Assâad El Akremi & Olivier Herrbach, 2013. "Determinants of Multi‐unit Franchising: An Organizational Economics Framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(3-5), pages 161-169, April.
    47. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    48. Wagner, Dominik & Block, Joern H. & Miller, Danny & Schwens, Christian & Xi, Guoqian, 2015. "A meta-analysis of the financial performance of family firms: Another attempt," Journal of Family Business Strategy, Elsevier, vol. 6(1), pages 3-13.
    49. David J. Denis & Diane K. Denis & Atulya Sarin, 1999. "Agency theory and the influence of equity ownership structure on corporate diversification strategies," Strategic Management Journal, Wiley Blackwell, vol. 20(11), pages 1071-1076, November.
    50. Mick Carney & Eric Gedajlovic, 1991. "Vertical integration in Franchise systems: Agency theory and resource explanations," Strategic Management Journal, Wiley Blackwell, vol. 12(8), pages 607-629, November.
    51. Habbershon, Timothy G. & Williams, Mary & MacMillan, Ian C., 2003. "A unified systems perspective of family firm performance," Journal of Business Venturing, Elsevier, vol. 18(4), pages 451-465, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vinay K. Garg & Benjamin D. Goss & Philip C. Rothschild, 2021. "A Process Study of the Development of Capabilities for Replication in an Evolving Franchise Chain," Business and Economic Research, Macrothink Institute, vol. 11(2), pages 227-251, June.
    2. Andrea Calabrò & Mariateresa Torchia & Andreas Kallmuenzer & Hedi Yezza & Cheng Feng, 2023. "Transgenerational entrepreneurship in family firms: a configurational approach," Review of Managerial Science, Springer, vol. 17(7), pages 2535-2554, October.
    3. Guo, Shiau-Ling, 2023. "The governance implication of the geographic concentration of franchise activities for franchise relationships," Journal of Business Research, Elsevier, vol. 157(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Flamini, Giulia & Pittino, Daniel & Visintin, Francesca, 2022. "Family leadership, family involvement and mutuality HRM practices in family SMEs," Journal of Family Business Strategy, Elsevier, vol. 13(2).
    2. David G. Sirmon & Jean–Luc Arregle & Michael A. Hitt & Justin W. Webb, 2008. "The Role of Family Influence in Firms’ Strategic Responses to Threat of Imitation," Entrepreneurship Theory and Practice, , vol. 32(6), pages 979-998, November.
    3. Richard Gentry & Clay Dibrell & Jaemin Kim, 2016. "Long–Term Orientation in Publicly Traded Family Businesses: Evidence of a Dominant Logic," Entrepreneurship Theory and Practice, , vol. 40(4), pages 733-757, July.
    4. Heino, Noora & Tuominen, Pasi & Jussila, Iiro, 2020. "Listed Family Firm Stakeholder Orientations: The Critical Role of Value-creating Family Factors," Journal of Family Business Strategy, Elsevier, vol. 11(4).
    5. Tsao, Chiung-Wen & Le Breton-Miller, Isabelle & Miller, Danny & Chen, Shyh-Jer, 2021. "Firing managers: The benefits of family ownership and costs of family management," Journal of Family Business Strategy, Elsevier, vol. 12(3).
    6. Francesco Chirico & Dianne H. B. Welsh & R. Duane Ireland & Philipp Sieger, 2021. "Family versus Non‐Family Firm Franchisors: Behavioural and Performance Differences," Journal of Management Studies, Wiley Blackwell, vol. 58(1), pages 165-200, January.
    7. Peter Jaskiewicz & Joern H. Block & James G. Combs & Danny Miller, 2017. "The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance," Entrepreneurship Theory and Practice, , vol. 41(1), pages 73-103, January.
    8. James J. Chrisman & Kristen Madison & Taewoo Kim, 2021. "A Dynamic Framework of Noneconomic Goals and Inter-Family Agency Complexities in Multi-Family Firms," Entrepreneurship Theory and Practice, , vol. 45(4), pages 906-930, July.
    9. David Hillier & Beatriz Martínez & Pankaj C. Patel & Julio Pindado & Ignacio Requejo, 2018. "Pound of Flesh? Debt Contract Strictness and Family Firms," Entrepreneurship Theory and Practice, , vol. 42(2), pages 259-282, March.
    10. Wright, Mike & Kellermanns, Franz W., 2011. "Family firms: A research agenda and publication guide," Journal of Family Business Strategy, Elsevier, vol. 2(4), pages 187-198.
    11. Davila, Jessenia & Duran, Patricio & Gómez-Mejía, Luis & Sanchez-Bueno, Maria J., 2023. "Socioemotional wealth and family firm performance: A meta-analytic integration," Journal of Family Business Strategy, Elsevier, vol. 14(2).
    12. Criaco, Giuseppe & van Oosterhout, J. (Hans) & Nordqvist, Mattias, 2021. "Is blood always thicker than water? Family firm parents, kinship ties, and the survival of spawns," Journal of Business Venturing, Elsevier, vol. 36(6).
    13. Matthias Filser & Alexander Brem & Johanna Gast & Sascha Kraus & Andrea Calabrò, 2016. "Innovation In Family Firms — Examining The Inventory And Mapping The Path," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(06), pages 1-39, August.
    14. Ivan Miroshnychenko & Alfredo De Massis & Danny Miller & Roberto Barontini, 2021. "Family Business Growth Around the World," Entrepreneurship Theory and Practice, , vol. 45(4), pages 682-708, July.
    15. Patricio Duran & Nadine Kammerlander & Marc van Essen & Thomas Zellweger, 2016. "Doing More with Less : Innovation Input and Output in Family Firms," Post-Print hal-02276703, HAL.
    16. Daspit, Joshua J. & Long, Rebecca G. & Pearson, Allison W., 2019. "How familiness affects innovation outcomes via absorptive capacity: A dynamic capability perspective of the family firm," Journal of Family Business Strategy, Elsevier, vol. 10(2), pages 133-143.
    17. Dawson, Alexandra & Mussolino, Donata, 2014. "Exploring what makes family firms different: Discrete or overlapping constructs in the literature?," Journal of Family Business Strategy, Elsevier, vol. 5(2), pages 169-183.
    18. McGuire, Jean & Dow, Sandra & Ibrahim, Bakr, 2012. "All in the family? Social performance and corporate governance in the family firm," Journal of Business Research, Elsevier, vol. 65(11), pages 1643-1650.
    19. Mazzi, Chiara, 2011. "Family business and financial performance: Current state of knowledge and future research challenges," Journal of Family Business Strategy, Elsevier, vol. 2(3), pages 166-181.
    20. Barros, Ismael & Hernangómez, Juan & Martin-Cruz, Natalia, 2016. "A theoretical model of strategic management of family firms. A dynamic capabilities approach," Journal of Family Business Strategy, Elsevier, vol. 7(3), pages 149-159.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jouret:v:94:y:2018:i:2:p:231-245. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.