Real Options, Intangible Resources and Performance of Franchise Networks

This study investigates the performance of franchise networks through the lens of the resource-based and real options theory. First, according to the resource-based view, we argue that the intangible resources of the franchisor (system-specific know-how and brand name) and the intangible outlet-specific resources of the franchisees (exploration and exploitation capabilities) positively impact the performance of the franchise system. Second, on the basis of the real option perspective, we show that the franchisor's use of an explicit call option in the franchise contract — as a clause that gives him or her the right to acquire franchise units — increases the franchisor's managerial flexibility and incentives for intangible investments and hence improves the performance of the franchise network. We test the hypotheses with cross-sectional data from the franchise sector in Germany. The data provide some support of the hypotheses. Our study contributes to the franchise and inter-organizational network literature as no prior study has applied the real option perspective to franchising