Search results

This paper's aim is to examine the risk‐adjusted market performance of an overall franchise and three sub‐sector franchise common stock portfolios from 1990 through 2008.

Four sets of franchise sector portfolios are constructed, their returns are calculated, and their performances relative to three market benchmarks are evaluated using the Sharpe ratio and Jensen's α.

The all franchise portfolio significantly outperformed the three market benchmarks. Among the sector portfolios, the services and restaurant portfolios also outperformed the market benchmarks, but not the lodging portfolio. Results support the theoretical hypothesis that franchising may provide superior advantages to investors and point to a possible “franchising anomaly”. Investors consider franchise firms to be less risky than the average publicly traded firms and therefore require a lower rate of return.

The results of the study suggest that in the past, franchise managers may have paid a much higher cost of capital than warranted by their firms' risk characteristics. Study results also have positive implications for franchise firms' access to capital and for evaluating franchise managers' compensation arrangements. Investors should consider allocating a portion of their investible funds to franchise stocks. Many lodging firms may not have taken full advantage of the benefits of franchising to reduce their financial risks. Restaurant firms may further improve their financial performance by selling their riskier units.

This is the first comprehensive study of the risk‐adjusted market performance of franchise firms over an extended period of time covering a variety of economic conditions that also analyzes the risk‐adjusted performance of the main business subcategories in franchising.

After reading and discussing this short case, the instructor should do the following: to enable the students to select and evaluate the main strength (sustainable competitive advantage) of an evolving brand whose leading manager needs to appreciate how it can be used to achieve the strategic objective of franchising it despite its challenges; to guide the students in choosing the most appropriate brand name that will sustainably reflect the parent organization’s identity and also retain its growing attractiveness to more event sponsors and other key partners in an environment of conflicting interests; to facilitate the students in choosing the appropriate strategy for strengthening the readiness to franchise and adapt a similar teaching and examining (annual event’s) model in a related course unit from among any of the target audience’s master and bachelor degree at another university elsewhere.

This short case shows how the annual Makerere University Business School (MUBS) hospitality day has evolved into a potential event franchise, which is attracting more VIPs, the media and demand to also be held in the country’s Vision 2040 cities where the respective campuses are located.

Bachelor (BA, BBA, BSc) and MBA/master degree level.

Teaching Notes are available for educators only.

CSS 12: Tourism and hospitality.

Examines the behavioural implications of the three main micro‐economic explanations – resource constraint, agency theory and search cost theory – for franchising. Reviews these theories, along with the empirical evidence found to support them. Highlights the implications of each explanation upon relational quality using four relational characteristics drawn from Macneil. Uses the characteristics of power balance, anticipation of trouble, sense of unity and presentation of costs and benefits. Argues that since the motivation to franchise depends upon the specific strategy employed by the franchisor, then relational quality will legitimately differ according to franchisor strategy. Describes a model drawn by linking strategic direction, franchise motivation and relational quality. Some illustrative propositions are derived from the model. Discusses the implications of the theory for both researchers and managers.

The purpose of this article is to describe the rationale behind and analyze the results of a strategy in regards to changing conditions and market share dominance. For more than 20 years, with the growth in available product varieties, product and brand proliferation have become increasingly evident in many consumer markets.

This article examines how three L’Oréal mass market businesses, i.e. L’Oréal Paris, Lascad and Gemey-Maybelline-Garnier (GMG), managed proliferation activities between 1988 and 2012 on their domestic market. Data were extracted from the information resources, inc. (IRI) Census and Sample Databases (retail panel data), and information was collected from internal sources and semi-structured interviews with top executives. Brand performance was assessed using panel data structure analysis, as recommended by IRI and Nielsen. Some data, as they remain confidential, were not included in the paper.

The study reveals that when opportunities are lacking, demand is declining, and competition is fierce – the situation that marks most mature markets – a proliferation strategy actually can yield diminishing results and reduced brand dominance.

Offering broader lines appears to generate confusion and to be counterproductive in relation to theoretical assumptions. Additional research on proliferation strategies is needed, particularly in declining market conditions, which implies diminished demand and market saturation due to increased competition and isomorphic practices.

When deciding to extend product lines, managers should take into account competition and more qualitative factors than those included in the models developed by and for store brands. The respective positioning and marketing strategy (i.e. challenger and leader) of the brands involved have also to be considered.

Prior research on proliferation strategies has relied on strong assumptions such as increase in demand and unsaturated markets. Through these case studies, this article shows that making the shelf space denser affects brand dominance, particularly when market conditions change. These results challenge current thinking as, in facing internal and external contingencies, managers might think which scenario is most favorable for maintaining a dominant position: changing the structure of the market by reducing (i.e. concentration) or increasing the number of brands/products in the market.

This study aims to explore the extent to which inter-organizational hybrid governance manages the micro design for optimum reverse knowledge transfer in the open innovation context. The authors use two essential facets of micro design in hybrid governance: product adaptation and integration mechanism.

Data for this study were collected from franchisees through structured questionnaires in Indonesia.

Results indicated that product adaptation has a positive relationship with reverse knowledge transfer. This study also found that the formalization strengthens the relationship between product adaptation and reverse knowledge transfer. However, the socialization does not have a moderation effect.

This research estimates the knowledge transfer from the agent’s side only. Therefore, further research is expected to estimate the reverse knowledge transfer in dyads (from agent and principal) to get a detailed understanding of reverse knowledge transfer.

This study offers guidelines to managers, especially in inter-organizational hybrid governance. The authors suggest reverse knowledge transfer as a form to manage the dispersed knowledge from their agents. Governing institutions should change their view that agents have diverse knowledgebase from experience adapting to local conditions and can improve their open innovation through reverse knowledge transfer. From the results, it is found that giving agents the flexibility to adapt products can boost reverse knowledge transfer to support open innovation.

This study provides an understanding of the utilization of external knowledge sourcing in the context of open innovation from agent to principal in hybrid governance through reverse knowledge transfer, which has thus far been empirically under-researched.

Borrowing from arguments of agency theory, the present study aims to investigate the moderating effect of the deviation from optimal franchising on the relationship between corporate governance provisions and firm financial performance.

The sample consists of 35 publicly listed US restaurant firms for the 1990-2008 period. The study uses a hierarchical regression with cross-sectional time-series fixed effects.

The results show that the deviation from optimal franchising worsens the negative relationship between corporate governance provisions and firm performance.

The availability of governance data restricts our sample to large publicly listed firms in the US restaurant industry, limiting the ability to generalize results for small and privately held restaurant firms.

Firm executives should not only pay attention to which corporate governance provisions they adopt but also strive to maintain an optimal level of franchising.

The key contribution of this study to governance literature is that this study demonstrates how the presence of multiple governance mechanisms influences firm performance.

This paper has two main purposes. First, this paper aims to examine whether pre-initial public offering (IPO) franchising activity of issuing firms is priced in the financial markets and results in pricing differential between franchising and non-franchising firms at the time of IPO. Second, the paper aims to find out whether firms with pre-IPO franchising achieve better post-IPO stock performance compared to non-franchising firms.

To test research hypotheses, empirical models were developed and tested through ordinary least square regression analysis. Several data sources were used including Thomson One Banker’s SDC database, Compustat/CRSP and IPO prospectuses.

The paper provides further insights to the underpricing phenomenon surrounding IPOs and long-run performance of IPO shares subsequent to listing. Particularly, the study reveals that franchising firms underprice their issues to a higher degree compared to non-franchising firms, and franchising positively affects the post-IPO benchmark adjusted cumulative abnormal returns (CARs) over a three-year observation period.

Because the study tests the proposed hypotheses using data only from the restaurant industry, the research results may lack generalizability. Therefore, researchers are encouraged to test similar hypotheses using larger sample sizes from other industries.

The study’s findings have important implications both for IPO issuers in positioning their offering and for IPO investors in comparing IPO stocks and forming long-run portfolios.

This paper contributes both to the IPO and franchising literatures by providing primary insights about how investors perceive pre-IPO franchising and incorporate their perception into their pricing at an IPO.

One of the most significant recent developments in the risk measurement and management area has been the emergence of value at risk (VaR). The VaR of a portfolio is the maximum loss that the portfolio will suffer over a defined time horizon, at a specified level of probability known as the VaR confidence level. The VaR has proven to be a very useful measure of market risk, and is widely used in the securities and derivatives sectors: a good example is the RiskMetrics system developed by J.P. Morgan. VaR measures based on systems such as RiskMetrics' sister, CreditMetrics, have also shown their worth as measures of credit risk, and for dealing with credit‐related derivatives. In addition, VaR can be used to measure cashflow risks and even operational risks. However, these areas are mainly concerned with risks over a relatively short time horizon, and VaR has had a more limited impact so far on the insurance and pensions literatures that are mainly concerned with longer‐term risks.