ABSTRACT

Purpose – The purpose of this research is to investigate the effect of ex ante governance mechanisms that can be exercised by franchisers on franchise contract compliance and various relationship outcomes. There are many previous studies on control mechanisms in inter-firm relationship, however, most studies focus on ex post governance mechanisms and identify the effects of behavior control and outcome control on performances. Based on transaction cost theory and agency theory, this study defines the ex ante governance mechanisms of franchisers as contractual completeness and extra contractual incentives. The author have examined the two ex ante control mechanisms on contract compliance, recontract intention, multi-shop running intention and opportunistic behaviors of franchisee. Research design, data, and methodology – In this study, 137 questionnaires of food and beverage franchise stores were collected through a specialized research company. The reliability and validity of the variables were analyzed using SPSS 18.0 and AMOS 18.0 programs and hypotheses were verified through the structural equation modeling. Results – As a result of hypothesis testing, contractual completeness and extra contractual incentives have a positive effect on the contract compliance of the franchisee. It is shown that franchisee’s contract compliance has a positive effect on recontract intention and multi-shop running intention and has a negative effect on opportunistic behaviors. Conclusions – This study examines the ex ante governance mechanisms such as contractual completeness and extra contractual incentives, which is relatively rare compared to ex post governance mechanism in B2B relationship. According to the results of this research, these two tools can be used as ex ante control mechanisms for franchise headquarters to use their franchisees. In addition, franchisee’s contract compliance affects various relationship outcomes between franchisor and franchisees.

KEYWORD

Ex Ante Governance Mechanisms, Contractual Completeness, Extra Contractual Incentives, Contract Compliance, Relationship Outcomes.

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