The impact of brand equity on vertical integration in franchise systems

Kayed, Mohammad; Kacke , Manish; Wu, Ruhai; Sadeh, Fa had
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The impac o b and equi y on e ical in eg a ion in
anchise sys ems
Jou nal o Re ailing
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The impac o b and equi y on e ical in eg a ion in
anchise sys ems
Mohammad Kayed
a,*
, Manish Kacke
b
, Ruhai Wu
b
, Fa had Sadeh
c
a
Williams School o Business, Bishop’s Uni e si y, 2600 College S ee , She b ooke, Quebec J1M 1Z7, Canada
b
DeG oo e School o Business, McMas e Uni e si y, 1280 Main S . W., Hamil on, ON L8S 4M4, Canada
c
Eas e n Illinois Uni e si y, 600 Lincoln A enue Cha les on, IL 61920-3099, Uni ed S a es
ARTICLE INFO
Edi ed by: D Ka ijn Gielens
Keywo ds:
Ve ical in eg a ion
B and equi y
F anchising
Re ailing
Dual dis ibu ion
ABSTRACT
B and equi y and e ical in eg a ion a e ocal, s a egic elemen s o a anchise sys em ha can
p o oundly in luence anchise pe o mance. Despi e he ecognized impo ance o hese wo
s a egic le e s and he longs anding esea ch in e es in he opic, ou unde s anding o he
in e play be ween b and equi y and e ical in eg a ion (company owne ship o ou le s) in a
anchise sys em emains incomple e. In his s udy, we e isi he i e-decade-old ques ion o how
b and equi y a ec s e ical in eg a ion in a anchise sys em and p esen some no el, nuanced
insigh s in o he opic. E idence om a Bayesian Panel Vec o Au o eg essi e model on a la ge
panel da a se shows ha b and equi y has a powe ul, lagging in e se e ec on e ical in e-
g a ion, such ha highe b and equi y leads o less downs eam e ical in eg a ion in a anchise
sys em. Re e se causali y analyses iden i y a less p onounced bu p esen ecip ocal e ec .
Bounda y condi ions analyses e eal ha he nega i e e ec o b and equi y on e ical in e-
g a ion is weake in anchise sys ems wi h in e na ional p esence and in e ail- ocused ( s.
se ice- ocused) anchises, and s onge in anchise sys ems wi h mo e inancial esou ces.
These indings (a) challenge adi ional iews (e.g., ansac ion cos heo y, esou ce-based iew,
owne ship edi ec ion hypo hesis) on he opic by demons a ing a nega i e e ec o b and
equi y on e ical in eg a ion in anchise sys ems and showing ha g ea e inancial esou ces
ampli y his e ec , and (b) shed new ligh on he in ica e dynamics ( empo al causa ion, e e se
causa ion) and con ingencies o his deba ed e ec . Manage ially, his esea ch d aws a en ion o
he unde ecognized s a egic bene i o b and equi y in mi iga ing channel go e nance issues and
ad ise agains unnecessa y e ical in eg a ion, especially when b and equi y is obus .
1. In oduc ion
F anchising is one o he mos widesp ead o ms o e ailing. In 2022, he e we e mo e han 790,000 business es ablishmen s in he
U.S. anchise sys ems, employing mo e han 8.4 million people, and wi h di ec economic ou pu close o $826 billion (IFA, 2023). In
pu sui o apid g ow h, ma ke expansion, ope a ional e iciencies, and isk mi iga ion, many i ms ely on anchising as hei
o ganiza ional o m o choice (Dan e al., 2011;Sawan e al., 2021). One o he key de e minan s o he e ec i eness o a i m’s
decision o adop anchising as i s o ganiza ional o m o e ailing is he way he anchise sys em i sel is o ganized, i.e., he
* Co esponding au ho .
E-mail add esses: [email p o ec ed] (M. Kayed), [email p o ec ed] (M. Kacke ), [email p o ec ed] (R. Wu), [email p o ec ed]
(F. Sadeh).
Con en s lis s a ailable a ScienceDi ec
Jou nal o Re ailing
jou nal homepage: www.else ie .com/loca e/ e ail
h ps://doi.o g/10.1016/j.j e ai.2025.01.007
Jou nal o Re ailing 101 (2025) 197–216
198
p opo ion o he ou le s in he anchise sys em ha is company-owned s. anchised o he deg ee o downs eam e ical in e-
g a ion
1
in he anchise sys em (Hsu e al., 2017;S ini asan, 2006).
Ex an anchising esea ch no only demons a es how he deg ee o e ical in eg a ion in a anchise sys em impac s i s o e all
inancial pe o mance
2
(Bu e al., 2018;Hsu e al., 2017;S ini asan, 2006), bu also emphasizes he impo ance o pu suing an
op imal deg ee o e ical in eg a ion. In his ega d, ecen e idence demons a es ha in es o s eac posi i ely o anchiso s’
ini ia i es o achie e an op imal deg ee o e ical in eg a ion, i espec i e o whe he hese ini ia i es en ail a dec ease o inc ease in
e ical in eg a ion (Sado niko a e al., 2023), unde sco ing he impo ance o ope a ing a an app op ia e deg ee o e ical in e-
g a ion o a anchise sys em.
Agains his backd op, an impo an manage ial ques ion eme ges: How does one o he mos in luen ial and dis inc i e elemen s in
he anchise sys em, i.e., b and equi y (Wu, 1999), in luence a anchiso ’s decision when i comes o e ical in eg a ion? In essence,
b and equi y is he co ne s one o he anchising business model and anchising can be hough o as a “leasing o he b and name”as
B ickley and Da k (1987, p.402) e e o i . Fu he mo e, b and equi y and e ical in eg a ion a e wo s a egic le e s in he anchise
se up ha (a) compe e o cons ained i m esou ces and (b) bo h ha e p o ound impac on he pe o mance o he anchise sys em
(S ini asan, 2006;Hsu e al., 2017). The e o e, a sound unde s anding o he causal, long- e m in e play be ween one o he mos
in luen ial elemen s o a anchise sys em (b and equi y) and one o he mos s a egically and inancially consequen ial decisions in
he anchise se up ( e ical in eg a ion) is impe a i e o in o med s a egic decision making by anchise manage s. Fu he mo e,
gi en he inhe en a iabili y in o ganiza ional cha ac e is ics and en i onmen al con ex s ac oss anchise sys ems, a p ope un-
de s anding o he mode a ing ac o s ha in luence he ela ionship be ween b and equi y and e ical in eg a ion is c ucial o
holis ic and con ex -awa e manage ial decision making. Hence, wo impo an manage ial ques ions a ise: (1) Does s onge b and
equi y lead o a highe o lowe deg ee o e ical in eg a ion wi hin a anchise sys em? And (2) Wha anchise- and indus y-le el
ac o s in luence he link be ween b and equi y and e ical in eg a ion and how?
The impo ance o he abo emen ioned manage ial ques ions is u he accen ua ed by he esu ging in e es in e ical in eg a ion
amongs anchising p ac i ione s in pa icula (Kelso, 2023) and amongs e ailing p ac i ione s in gene al (Ha pe , 2020). This is
su p ising conside ing ha (a) companies’ ack eco d o e ical in eg a ion had been “ugly”(Rumel , 1974); (b) ecen business
memo y is s ill eple e wi h unsuccess ul e ical in eg a ion ad en u es by p ominen b and names (B uno, 2021;Schmalz, 2018); and
(c) inancial ma ke s ha e de eloped a habi o ha shly punishing e ical in eg a ion en u es om hei commencemen (Moelle
e al., 2005). The e o e, his ma ks a imely junc u e o e isi he ques ion o whe he anchise sys ems wi h highe b and equi y
should pu sue mo e o less e ical in eg a ion.
On he heo e ical on , he ques ion o whe he s onge b and equi y leads o lowe o highe deg ee o e ical in eg a ion wi hin
a anchise sys em is a i e-decade-old deba e in he anchising li e a u e.
3
As e iden in Tables 1 and 2, p e ious esea ch has used
di e en heo e ical lenses (such as Agency Theo y, T ansac ion Cos Theo y, and Signaling Theo y) o examining his ques ion, and
a i ed a con lic ing indings (some imes om he same heo y and some imes by he same au ho s). The e o e, a p ope unde -
s anding o he s a egic in e play be ween b and equi y and e ical in eg a ion is c ucial o he ad ancemen o anchising heo y.
The heo e ical signi icance o his canno be u he emphasized gi en ha , as pe T ansac ion Cos Theo y (TCT), he g ow h o he
anchising business model eme ged as a p agma ic esponse o cos ly and o en ine ec i e e ical in eg a ion (Williamson, 1991).
This is why, in he TCT li e a u e, anchising is o en e e ed o as a “hyb id” o m o channel go e nance ha combines go e nance
aspec s o “ma ke s”and “hie a chies” o allow i ms o eap he bene i s o e ical in eg a ion wi hou he need o ac ual e ical
in eg a ion (Williamson, 2005).
To in o m s a egic decision making by anchise manage s and o help in se ling he long-s anding heo e ic deba e on he impac
o b and equi y on e ical in eg a ion amongs anchising esea che s, we (a) e iew exis ing esea ch on he impac o b and equi y
on e ical in eg a ion in anchising, (b) p esen a hypo hesis ha e lec s he majo i y o ex an empi ical e idence on he opic, (c)
d aw on he heo y o sel -en o cing con ac s om new ins i u ional economics (Klein, 1985;2002) and he powe -dependence heo y
om social psychology (Eme son, 1962) and p esen a i al hypo hesis, and (d) es hese wo hypo heses and examine bounda y
condi ions using a Bayesian Panel Vec o Au o eg essi e model on a la ge panel da a se o 9151 obse a ions om No h Ame ican
anchise chains.
Ou esul s e eal ha b and equi y has a powe ul, lagging in e se e ec on e ical in eg a ion in anchise sys ems, such ha
highe b and equi y leads o less downs eam e ical in eg a ion. The impulse esponse unc ions (IRFs) om ou empi ical analyses
indica e ha a shock o one o he p oxies o b and equi y nega i ely impac s he deg ee o e ical in eg a ion in a anchise sys em.
1
Whe e e “ e ical in eg a ion”is men ioned in his a icle, i indica es he deg ee o downs eam o o wa d e ical in eg a ion, as e lec ed by
he “p opo ion o company-owned ou le s in he anchise sys em.”In a simila ein, p io esea ch in anchising has used he e m “dual dis-
ibu ion” o e e o he “p opo ion o anchised ou le s in he anchise sys em.”Dual dis ibu ion has also been used o indica e he concu ence/
mul iplici y o channels, such as he use o bo h eps and house accoun s, o he use o bo h deale ship channel and a en al agency channel. Tape ed
in eg a ion has also been used in he li e a u e o indica e he p esence o bo h owned and anchised ou le s in he sys em.
2
The li e a u e shows mixed e ec s o e ical in eg a ion (p opo ion o company-owned ou le s) on pe o mance measu es. Fo example,
Koso a and La on aine (2010) epo mixed esul s o he e ec o e ical in eg a ion on chain su i al and chain g ow h; Hsu e al. (2017) show
ha he p opo ion o anchised ou le s has a nega i e impac on s ock e u ns and idiosync a ic isk; Madanoglu and Cas ogio anni (2018) epo
a U-shaped e ec o anchising p opo ion on chain su i al; S ini asan (2006) obse es ha dual dis ibu ion (p opo ion o anchised ou le s)
inc eases in angible i m alue o some i ms bu dec eases i o o he s depending on i m cha ac e is ics.
3
This deba e aces back o Oxen eld and Kelly’s (1968) JR a icle “Will success ul anchise sys ems ul ima ely become wholly-owned chains?”
M. Kayed e al.
Jou nal o Re ailing 101 (2025) 197–216
199
Table 1
Empi ical esea ch on he impac o b and equi y on e ical in eg a ion in anchise sys ems.
Me hod Theo y Findings
S udy P oxies o B and Equi y Con olled o
Endogenei y
Modeled
Lagged E ec s
Con olled o
Unobse ed
He e ogenei y
Examined
Causali y
In es iga ed Re e se
Causali y
Theo e ical Lens Impac o BE
on VI
B ickley and Da k
(1987)
Repea Cus ome s Agency Theo y þ
No on (1988a) T a el In ensi y T ansac ion Cos Theo y þ
Minkle and Pa k
(1994)
Ma ke Value minus Book
Value
X T ansac ion Cos Theo y þ
Nicke son and
Sil e man
(2003)
Ad e ising T ansac ion Cos Theo y þ
La on aine and
Shaw (2005)
Ad e ising X Agency Theo y þ
No on (1988b) T a el In ensi y X Agency Theo y –
This S udy Ad e ising, B and
Ranking, F anchise Fee
X X X X X Theo y o Sel -en o cing
Con ac s, Powe -Dependence
Theo y
–
BE: B and Equi y; VI: Downs eam e ical In eg a ion.
M. Kayed e al.
Jou nal o Re ailing 101 (2025) 197–216
200
The shock (a sudden inc ease) akes a yea o wo o s a ma e ially a ec ing he deg ee o e ical in eg a ion in he anchise sys em;
howe e , i s e ec keeps building momen um o e ime a he han ading away. One o he no able indings om ou s udy is he
de ec ion o bidi ec ional, empo al causal lows be ween b and equi y and e ical in eg a ion. Tha said, he esul s clea ly indica e
ha he e ec o b and equi y on e ical in eg a ion is mo e p onounced, powe ul, and pe sis en han he e e se e ec . Ou esul s
emained consis en ollowing a ba e y o obus ness checks and al e na i e model speci ica ions. Empi ical analyses o bounda y
condi ions e eal ha : (a) he nega i e e ec o b and equi y on e ical in eg a ion is weake in anchise sys ems wi h in e na ional
p esence and in e ail- ocused anchises (in compa ison wi h se ice- ocused anchises), and (b) he e ec is s onge in anchise
sys ems wi h mo e inancial esou ces, which p o ides ano he e u a ion o one o he mos deba ed a gumen s in he anchising
li e a u e, he “owne ship edi ec ion hypo hesis”(Oxen eld &Kelly 1968;Dan e al., 1996).
Theo e ically, ou s udy con ibu es o ou ma ke ing esea ch s eams. Fi s , we con ibu e o he anchising and e ailing
li e a u e by o e ing he i s comp ehensi e examina ion o he causal, empo al, ecip ocal, and mode a ed e ec s o b and equi y on
e ical in eg a ion in anchise sys ems. Second, we ad ance he b oade dis ibu ion channels li e a u e by p o iding empi ical
e idence ( om he anchising con ex ) ha suppo s exis ing heo e ical iews on he impac o b and equi y on e ical in eg a ion in
dis ibu ion channels. Thi d, we ad ance he b and equi y li e a u e by highligh ing he signi ican ole b and equi y plays in he
go e nance o anchise sys ems, whe e i unc ions as a “sa egua ding asse ” ha cu ails anchisee oppo unism, he eby educing
he need o ex ensi e e ical in eg a ion. Fou h, we add o he ma ke ing in e ac ions li e a u e (which examines in e ac ions among
ma ke ing s a egy elemen s) by explo ing he dynamic in e ac ion be ween b and and dis ibu ion s a egy.
Manage ially, despi e he esu gence in in e es in e ical in eg a ion amongs anchising and e ailing p ac i ione s, ou indings
ad ise agains unnecessa y e ical in eg a ion especially in si ua ions whe e he anchise sys em enjoys a mode a e o high le el o
b and equi y. We show ha as b and equi y inc eases, anchiso s lean mo e on hei b ands o sa egua d hemsel es agains an-
chisees’oppo unism and o e ec i ely go e n hei anchise sys ems, wi hou he need o ex ensi e in ol emen in di ec dis i-
bu ion. Addi ionally, we pu in he hands o b and manage s o anchise sys ems use ul empi ical e idence ha can help hem in
selling b and building ini ia i es o senio managemen and o he o ganiza ional s akeholde s. This esea ch sheds ligh on an unde -
ecognized go e nance- ela ed bene i o b and equi y in anchise sys ems: b and equi y unc ions as a sa egua ding asse ha
e ec i ely mi iga es many channel go e nance p oblems h ough con ac ual sel -en o cemen , which in u n alle ia es he need o
cos ly and o en ine ec i e e ical in eg a ion. The e o e, b and in es men s can be seen as “dual in es men s”di ec ly in he b and
and indi ec ly in he channel – his makes hei isk/ ewa d a io supe io o many o he al e na i es, especially in es men s in di ec
dis ibu ion. This can make he challenging ask o gaining o ganiza ional suppo o b and building ac i i ies much easie o b and
manage s o anchise sys ems.
2. Theo y &hypo heses
The ques ion o how b and equi y a ec s e ical in eg a ion in a anchise sys em has a ac ed a easonable amoun o heo e ical
and empi ical a en ion om esea che s, p ima ily in o ganiza ional economics. Much o exis ing esea ch app oaches he ques ion
om a pu e economic o ganiza ion poin o iew, elying on he heo e ical lenses o ansac ion cos heo y (TCT) and agency heo y
(AT). The cen al idea he e is ha a anchiso ’s b and equi y is an in angible speci ic asse ha mus be sa egua ded agains po en ial
anchisee oppo unism and/o ee- iding. Oppo unis ic anchisee beha io s (de ia ions om con ac ual e ms o ag eed s an-
da ds), such as comp omising on quali y, ailing o comply wi h b and s anda ds, selec i e p oduc o e ings agains anchise
guidelines, o unau ho ized use o in ellec ual p ope y, pose signi ican h ea s o he b and image and epu a ion o he anchise.
Simila ly, anchisee ee- iding beha io s ( eliance on he asse s and esou ces o he anchise wi hou making he expec ed con-
ibu ions), such as insu icien local ma ke ing, minimal cus ome se ice, poo acili y upkeep, and inadequa e employee aining,
can e ode he pe cei ed b and alue o he anchise. As b and equi y inc eases, he isks associa ed wi h anchisee oppo unism and
Table 2
Theo e ical p edic ions abou he impac o b and equi y on e ical in eg a ion in anchise sys ems.
Theo y P edic ing a Posi i e Impac Theo y P edic ing a Nega i e Impac
T ansac ion Cos Theo y: The b and equi y o a anchise sys em is a aluable
in angible asse ha mus be sa egua ded agains anchisees’oppo unism.
The e o e, as b and equi y inc eases, e ical in eg a ion should inc ease (
Minkle &Pa k, 1994;Nicke son &Sil e man, 2003;No on, 1988a).
Signaling Theo y: when b and equi y is low, he anchiso owns a po ion o
he anchise sys em o signal i s commi men o he b and o cu en and
po en ial anchisees. Then, as b and equi y inc eases, e ical in eg a ion
dec eases (Gallini &Lu z, 1992).
Agency Theo y: The b and equi y o a anchise sys em is a aluable in angible
asse ha mus be sa egua ded agains anchisees’ ee iding. The e o e, as
b and equi y inc eases, e ical in eg a ion should inc ease (B ickley &
Da k, 1987;La on aine &Shaw, 2005;Ma hewson &Win e , 1985).
Agency Theo y: when b and equi y is high, a anchiso o ei s mo e
economic gains o shi king manage s han o independen anchisees. Hence,
as b and equi y inc eases, e ical in eg a ion should dec ease (No on,
1988b).
Owne ship Redi ec ion Hypo hesis: F anchiso s use anchisees o open
ma ke s, g ow he chain, de elop consume accep ance o he b and, and
hen app op ia e ha b and equi y by e mina ing o o he wise ending he
anchisees’ anchising igh s. The e o e, as b and equi y inc eases, e ical
in eg a ion should inc ease (Oxen eld &Kelly, 1968;Dan e al., 1996).
Resou ce Sca ci y Theo y: Building b and equi y and e ically in eg a ing
he channel a e wo s a egic ac i i ies ha bo h equi e majo esou ces and
impac pe o mance. The anchiso has o alloca e i s cons ained esou ces o
bo h ac i i ies app op ia ely. Hence, he a ailabili y o esou ces o one
ac i i y (b and building) na u ally limi s hei a ailabili y o he o he
( e ical in eg a ion). The e o e, as b and equi y inc eases, e ical in eg a ion
should dec ease.
(Gillis e al., 2014;Ca ney &Gedajlo ic, 1991).
M. Kayed e al.

Jou nal o Re ailing 101 (2025) 197–216
201
ee- iding become mo e p onounced and de imen al. This compels he anchiso o pu sue mo e e ical con ol wi hin he anchise
sys em o p o ec b and epu a ion, ensu e consis en b and image, and main ain pe cei ed b and quali y. This pu sui o e ical
con ol o en mani es s in he o m o a mo e hie a chical channel go e nance s uc u e i.e., a highe deg ee o downs eam e ical
in eg a ion wi hin he anchise chain. Hence, s onge b and equi y calls o mo e e ical in eg a ion wi hin a anchise sys em. In
wha ollows, we p o ide a de ailed discussion o his idea h ough he pe spec i es o ansac ion cos heo y and agency heo y.
P oponen s o ansac ion cos heo y pe cei e a anchiso ’s b and equi y as an in angible speci ic asse ha s imula es oppo -
unis ic beha io by anchisees. Hence, as b and equi y inc eases, he h ea o oppo unism ises, and he b and owne ( anchiso )
a ionally elies on a mo e hie a chical channel go e nance s uc u e (highe deg ee o downs eam e ical in eg a ion) o sa egua d
his aluable speci ic asse – he b and. Fo example, No on (1988a) examines a sample o anchise chains, om he ea ing places and
mo el indus ies in he U.S., and inds ha as b and equi y inc eases, i ms ely mo e on e ical in eg a ion because b and equi y
“c ea es oppo unis ic incen i es”(No on 1988a, p.108). In he same ein, and wi hin he con ex o he U.S. ucking indus y,
Nicke son and Sil e man (2003) obse e ha he mo e a ucking company (mo o ca ie ) in es s in i s b and name, he mo e likely i
is o employ company d i e s, as opposed o owne -ope a o s i.e., he mo e e ically in eg a ed i is. Along he same lines, Minkle and
Pa k (1994) empi ically examine a sample o public Ame ican anchises om h ee indus ies ( es au an s, ho els, and p o essional
se ices) and ind ha an inc ease in b and equi y is posi i ely ela ed wi h an inc ease in he deg ee o downs eam e ical in e-
g a ion in he anchise sys em.
In a simila spi i , agency heo is s iew a anchiso ’s b and equi y as a mo i a ion o ee iding by anchisees due o he inhe en
incen i e di e gence be ween he b and lesso ( anchiso ) and he b and lessee ( anchisee). Hence, as b and equi y inc eases,
anchisees’incen i e o ee ide on he b and, by unde -deli e ing he pledged se ices o lowe ing quali y s anda ds, inc eases.
The e o e, an inc ease in b and equi y, calls o mo e e ical con ol i.e., highe deg ee o e ical in eg a ion o mi iga e he isk o
anchisees’mo al haza d. B ickley and Da k (1987) s udy a sample o Ame ican anchises om nine indus ies and epo e idence
on a posi i e ela ionship be ween b and equi y and downs eam e ical in eg a ion. Simila ly, La on aine and Shaw (2005) es ablish,
using a mul i-indus y longi udinal sample o anchise chains, ha companies wi h mo e aluable b and names a e mo e e ically
in eg a ed and a gue ha hey do so o p o ec hei b ands om anchisees’ ee iding. In he same ein, Ma hewson and Win e
(1985) demons a e, using a game heo e ic model, ha when b and equi y inc eases, anchisees’ emp a ion o ee ide on he b and
name inc eases which consequen ly inc eases moni o ing cos s. In esponse o ha , anchiso s ely mo e on e ical in eg a ion in
go e ning hei anchise chains.
Despi e he di e ences in he heo e ical lenses and me hodological app oaches o he a o emen ioned s udies, he e seems o be a
con e gence in hei concep ion o he subjec ma e . Fi s , all hese s udies iew he ela ionship be ween b and equi y and e ical
in eg a ion as a pu e economic o ganiza ion conce n and hus app oach i om a cos -cen e ed pe spec i e ha is ocused p ima ily on
managing ansac ion/agency cos s. Second, hey pe cei e b and equi y as a po en ial a ge o ic im o oppo unis ic beha io and/
o mo al haza d and some hing ha needs o be p ese ed o sa egua ded agains such undesi able beha io s. The e o e, wi h his cos -
cen ic and p o ec ion- ocused iew, i is no su p ise ha esea ch in his space has p edic ed a posi i e ela ionship be ween b and
equi y and e ical in eg a ion (see Tables 1 and 2). To ep esen his line o hinking we in oduce he ollowing hypo hesis:
H1: Highe b and equi y leads o mo e downs eam e ical in eg a ion in a anchise sys em (highe p opo ion o company-owned ou le s).
In con as wi h he abo e-discussed iew (which pe cei es b and equi y as an ex e nal ansac ional a ibu e o as “an asse o be
sa egua ded”agains pa ne oppo unism and/o mo al haza d), and in line wi h a deep- oo ed iew in economics (Hoos, 1959;
Ne lo e &A ow, 1962) and ma ke ing (Fische &Himme, 2017), we ecognize b and equi y as a dynamic, s a egic asse ha can be
used o sa egua d he i m agains pa ne s’oppo unism and/o mo al haza d. Then, we d aw on he powe -dependence heo y
(Eme son, 1962) and he heo y o sel -en o cing con ac s (Klein, 1985;2002) o es ablish ou heo e ical a gumen s (Okhuysen &
Bona di, 2011). Ou p ima y a gumen is ha he ole o b and equi y in a anchising ela ionship is oo signi ican (B ickley &Da k,
1987;Wu, 1999) o be educed o being a ansac ional a ibu e o a a ge o anchisees’mo al haza d and/o oppo unism. We
a gue ha a anchiso ’s b and equi y i sel is an e ec i e “sa egua ding asse ”agains anchisees’oppo unism and/o mo al haza d,
a he han “an asse o be sa egua ded”agains hese h ea s, because i simul aneously and e ec i ely unc ions as a eliable
incen i e and a c edible h ea when dealing wi h anchisees. This ca o -and-s ick mechanism e ec i ely mo i a es anchisees o
exe cise sel -en o cemen , which p o ides a s ong sa egua d agains hei oppo unism and/o mo al haza d and subsequen ly di -
uses p essu es o ins i u ing e ical bu eauc a ic con ols h ough e ical in eg a ion. In wha ollows, we p o ide a de ailed dis-
cussion o ou heo e ical easoning.
As pe he powe -dependence heo y (Eme son, 1962), a anchisee’s dependence on a anchiso is (a) di ec ly p opo ional o he
anchisee’s mo i a ional in es men in goals media ed by he anchiso , and (b) in e sely p opo ional o he a ailabili y o hose
goals o he anchisee ou side he anchiso ’s anchise sys em. When a anchisee joins a anchise sys em, i s main mo i a ional
in es men is he economic bene i s (e.g., enhanced cash lows, s able cash lows, access o capi al, economies o scale, ope a ional
e iciencies, e u n on in es men ) and compe i i e ad an ages (e.g., ma ke sha e, cus ome loyal y, epu a ional capi al, supply chain
syne gies) p o ided by ha anchise sys em (Blai &La on aine, 2005;Hoy e al., 2017;Hsu e al., 2017). These aluable economic
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202
and compe i i e bene i s a e no only p edominan ly media ed by he b and equi y o he anchise sys em (B ickley &Da k, 1987;Hsu
e al., 2017), bu also limi ed in anchise sys ems wi hou a s ong b and name (Blai &La on aine, 2005;Wu, 1999).
4
The e o e, as
he b and equi y o a anchise sys em inc eases, he magni ude and ce ain y o hese sough -a e economic and compe i i e bene i s
inc ease and he a ailabili y o compa able bene i s ou side he anchise sys em dec eases. Hence, he s onge he b and equi y o a
anchise sys em, he mo e dependen a e he anchisees on he anchiso . This iew is consis en wi h Da is and Men ze ’s (2008)
a gumen ha b and equi y inc eases selle ’s dependence on b and owne s. The e o e, he s onge he b and equi y o a anchise sys em,
he mo e dependen a e he anchisees on he anchiso .
As pe he heo y o sel -en o cing con ac s (Klein, 1985;2002), pe o mance in mos business ela ionships is secu ed h ough
con ac ual sel -en o cemen a he han legal en o cemen due o inhe en con ac ual incomple eness. In a anchising ela ionship,
con ac ual sel -en o cemen occu s when he bene i s a anchisee expec s o gain om he anchising ela ionship a e g ea e han
hose a ailable ou side. In such a case, a c edible e mina ion sanc ion is su icien o mo i a e he anchisee o p o ide he desi ed
e o le el and no ac oppo unis ically (Klein, 2002;Wa hne &Heide, 2000). Thus, he dependence imbalance dynamic c ea ed by
he anchiso ’s b and equi y implies ha a anchisee’s long- e m losses om noncompliance and he po en ial consequen e mi-
na ion o he anchising ela ionship signi ican ly ou weigh he sho - e m bene i s om ac ing oppo unis ically. In addi ion, as he
b and equi y o he anchise sys em inc eases, he sys em’s a ac i eness o high-quali y anchisees inc eases and he ba gaining
powe o he anchiso also inc eases (Ghan ous &Ch is odoulides, 2020). This makes he p ocess o eplacing a noncomplian
anchisee much easie should ha anchisee choose he sho - e m gains o oppo unism o e he long- e m ewa ds o compliance;
in o he wo ds, i makes he anchiso ’s e mina ion sanc ion mo e c edible. This c edible e mina ion sanc ion ( he s ick), coupled
wi h he a o emen ioned dependence imbalance ( he ca o ), signi ican ly alle ia es he holdup p oblem o he anchiso and in-
c eases he con ac ual sel -en o ceabili y in he anchising ela ionship. The e o e, he s onge he b and equi y o a anchise sys em,
he highe he con ac ual sel -en o ceabili y in he anchising ela ionship.
5
In in e o ganiza ional ela ionships like anchising, e ical in eg a ion ( e ical bu eauc a ic con ol) is ypically concei ed as a
solu ion o go e nance p oblems such as pa ne mo al haza d, holdup, and oppo unism (Klein e al., 1978;Heide, 1994;Rind leisch
&Heide, 1997). Con ac ual sel -en o cemen is conside ed mo e e icien han e ical bu eauc a ic con ol and mo e e ec i e han
legal en o cemen in sol ing such go e nance p oblems (Heide &John, 1988;Klein &Le le , 1981;Wa hne &Heide, 2000). Hence,
he highe he con ac ual sel -en o ceabili y in he anchising ela ionship, he less is he need o downs eam e ical in eg a ion.
B inging oge he he p eceding h ee a gumen s, ou heo e ical iew on he impac o b and equi y on e ical in eg a ion can be
summa ized as ollows: he s onge he b and equi y o a anchise sys em, he mo e dependen a e he anchisees on he anchiso
and he mo e c edible is he anchiso ’s e mina ion sanc ion. This discou ages anchisees om ac ing oppo unis ically and leads o
a sel -en o cing con ac ual ela ionship ha is ancho ed in he ewa ds o compliance and he cos s o de ia ion. This in u n alle ia es
he anchiso ’s channel go e nance p oblem and educes he need o e ical bu eauc a ic con ol h ough e ical in eg a ion. To
e lec ou line o hinking,
6
we ad ance he ollowing i al hypo hesis:
H1(al ): Highe b and equi y leads o less downs eam e ical in eg a ion in a anchise sys em (lowe p opo ion o company-owned
ou le s).
2.1. Bounda y condi ions
As e iden in he a o emen ioned discussion, he in e play be ween b and equi y and e ical in eg a ion wi hin a anchise sys em
is mul i ace ed, dynamic, and shaped by a ious conside a ions. Addi ionally, anchise sys ems a y in hei cha ac e is ics, he
challenges hey ace, and he en i onmen s in which hey ope a e. This sugges s ha he ela ionship be ween b and equi y and
e ical in eg a ion is likely o be in luenced by ce ain anchise- and indus y-le el ac o s. Fo ins ance, he challenges aced by
in e na ional anchises can signi ican ly a y om hose aced by domes ic anchises. Simila ly, he s a egic p io i ies o anchises
wi h limi ed esou ces a e likely o di e om hose o anchises wi h mo e esou ces. Also, he compe i i e, ope a ional, egula o y,
and consume - ela ed challenges aced by e ail- ocused anchises a e likely di e en om hose aced by se ice- ocused anchises.
4
S i as a a e al. (1998) p o ide a de ailed explana ion o how b and equi y ansla es in o g owing, pe sis ing economic en s by enhancing cash
low, accele a ing cash low, educing ola ili y in cash low, and boos ing he esidual alue o cash low. Fische and Himme (2017) p o ide a
summa y o exis ing empi ical e idence on his.
5
Kau mann and La on aine (1994) ound e idence ha McDonald’s in en ionally lea es “excess en s”on he able o i s downs eam pa ne s as
a mechanism o coun e ing hei oppo unism and incen i izing hem o exe cise sel -en o cemen . Michael and Moo e (1995) epo ha his
p ac ice is also common among Eu opean anchiso s who delibe a ely lea e “well-abo e-a e age e u ns” o hei anchisees as a mechanism o
cu bing hei oppo unism h ough sel -en o cemen . Fu he mo e, hey epo ha hese excess en s a y om one anchiso o ano he , wi h
la ge b ands ending o lea e mo e en s on he able o hei channel pa ne s.
6
Exis ing anchising esea ch p o ides a gumen s ha suppo ou iew o he impac o b and equi y on e ical in eg a ion in anchise sys ems
(see Table 2). Fo example, Gallini and Lu z (1992) o e a game heo e ic signaling a gumen sugges ing ha when b and equi y is low, he
anchiso owns a po ion o he anchise sys em o signal i s commi men o he b and o cu en and po en ial anchisees. Then, as b and equi y
inc eases, e ical in eg a ion dec eases. In he same ein, No on (1988b) a gues ha when b and equi y is high, a anchiso o ei s mo e eco-
nomic gains o shi king manage s han o independen anchisees. Hence, as b and equi y inc eases, e ical in eg a ion should dec ease.
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203
Such ac o s a e expec ed o play a ole in shaping he anchiso ’s e ical in eg a ion s a egy. The e o e, wi hou a bounda y
condi ions analysis ha explo es he nuances o he ela ionship be ween b and equi y and e ical in eg a ion, ou unde s anding o
his impo an ela ionship will emain incomple e.
Resea ch on dual dis ibu ion in anchising highligh s ou key ac o s ha can in luence he ela ionship be ween b and equi y
and e ical in eg a ion: i m esou ces, in e na ional p esence, chain size, and indus y e ec s. This li e a u e (e.g., Gallini &Lu z,
1992;P´
ena d e al., 2003;S ini asan, 2006) d aws a en ion o he anchiso ’s dual pu sui o chain g ow h (expanding h ough
addi ional anchised ou le s) and e ec i e go e nance (main aining an op imal deg ee o e ical con ol h ough company-owned
ou le s), unde sco ing he impo ance o examining he mode a ion e ec s o i m esou ces and chain size on he link be ween
b and equi y and e ical in eg a ion. Also, i highligh s he unique challenges aced by in e na ional anchises, pa icula ly he
heigh ened in o ma ion asymme y hey encoun e compa ed o domes ic anchises, and i s impac on he anchise’s dual dis i-
bu ion s a egy (P´
ena d e al., 2003;Wilson &Shaile , 2015). Addi ionally, i emphasizes he signi ican in e -indus y a ia ions in
dual dis ibu ion dynamics, highligh ing how sec o -speci ic ac o s such as consume beha io , compe i ion dynamics, egula o y
equi emen s, and ope a ional challenges can in luence he anchiso ’s e ical in eg a ion s a egy (Gallini &Lu z, 1992;P´
ena d
e al., 2003;S ini asan, 2006). In wha ollows, we desc ibe he expec ed mode a ion e ec s o he a o emen ioned ou ac o s, discuss
hei heo e ical unde pinnings, and ad ance ou mode a ion hypo heses.
Fi s , as pe esou ce sca ci y heo y (see Table 2), building b and equi y and e ically in eg a ing he channel a e wo s a egic
ac i i ies ha compe e o he anchiso ’s cons ained esou ces (Gillis e al., 2014;Ca ney &Gedajlo ic, 1991). The e o e, he
nega i e ela ionship be ween b and equi y and e ical in eg a ion is expec ed o be weake in anchise sys ems wi h mo e esou ces.
The owne ship edi ec ion hypo hesis (Oxen eld &Kelly 1968;Dan e al., 1996) u he suppo s his iew, sugges ing ha an-
chiso s ini ially ely on anchised ou le s when esou ces a e limi ed. As esou ces become mo e abundan , anchiso s end o
ansi ion owa d company owne ship o be e manage and con ol he b and while alloca ing esou ces mo e e icien ly. Hence,
H2: The nega i e e ec o b and equi y on e ical in eg a ion is weake in anchise sys ems wi h mo e esou ces.
Second, anchising esea ch es ablishes ha in e na ional anchiso s encoun e highe en i onmen al unce ain y and ace
g ea e he e ogenei y o egula o y, compe i i e, and ope a ional ac o s ac oss ma ke s han domes ic anchiso s (Aliouche &
Schlen ich, 2011;Elango, 2007). I also sugges s ha a anchiso ’s "supe io capabili y" o manage anchisees’oppo unism unde
hese di e se and challenging condi ions is c i ical o global success (Shane, 1996a). In esponse o such complexi ies, in e na ional
anchiso s may ely mo e on e ical in eg a ion, as di ec owne ship o ou le s enables close o e sigh , mi iga ing he isks asso-
cia ed wi h depending on o eign anchisees. Fu he mo e, sa egua ding b and equi y is mo e c i ical in in e na ional con ex s, whe e
a ying local in e p e a ions and po en ial misalignmen s call o igh e ope a ional con ol o ensu e consis ency in cus ome ex-
pe iences and p oduc quali y (Aliouche &Schlen ich, 2011;Shane, 1996a). Finally, in e na ional anchiso s ace a mo e in ica e
s a egic calculus, whe e ac o s such as ma ke en y, economies o scale and scope, compe i ion, and he una ailabili y o
high-quali y pa ne s o en ou weigh o he conside a ions, which can u he ein o ce he p e e ence o di ec owne ship and e ical
bu eauc a ic con ol (Jell-Ojobo e al., 2022). The e o e, he nega i e ela ionship be ween b and equi y and e ical in eg a ion is
expec ed o be weake o in e na ional anchiso s. Hence,
H3: The nega i e e ec o b and equi y on e ical in eg a ion is weake in anchise sys ems wi h in e na ional p esence.
Thi d, anchising esea ch es ablishes ha in la ge anchise chains, a lowe deg ee o e ical in eg a ion is o en associa ed wi h
ewe agency p oblems due o educed shi king owing o a lowe p opo ion o company-owned ou le s as well as enhanced moni o ing
capabili ies ailo ed o anchisees. Shane (1996b) explains ha economies o scale allow anchiso s o moni o anchisees mo e
igo ously and cos -e ec i ely, add essing anchisee-speci ic agency p oblems such as unde in es men in sys em-speci ic asse s and
ee- iding on sys em-wide e o s.
7
Fu he mo e, anchiso s imp o e hei abili y o moni o anchisees o e ime h ough o ga-
niza ional lea ning, u he educing agency p oblems as he chain g ows. In addi ion o ha , anchising esea ch p o ides empi ical
e idence o a nega i e ela ionship be ween chain size and e ical in eg a ion (Kacke e al., 2016;Shane e al., 2006). Thus, la ge
anchise chains inhe en ly end o ope a e wi h a lowe deg ee o e ical in eg a ion, which can accen ua e he in luence o b and
equi y in u he educing e ical in eg a ion wi hin hese chains. Hence,
H4: The nega i e e ec o b and equi y on e ical in eg a ion is s onge in la ge anchise sys ems.
Finally, ega ding indus y e ec s, e ail- ocused anchises ace some unique challenges ha o en compel hem o exe cise mo e
e ical con ol o e he chain compa ed o se ice- ocused anchises. Fo ins ance, a c i ical issue in he e ail sec o is in en o y
managemen , whe e a oiding bo h o e s ocking and s ockou s is c ucial o he success o indi idual ou le s, as well as o he success
o he anchise sys em as a whole (Li e al., 2023). This migh d i e e ail- ocused anchiso s o pu sue mo e di ec owne ship o
ou le s o main ain op imal in en o y con ol and e icien dis ibu ion. Fu he mo e, e ail- ocused anchises ely hea ily on
7
Unlike employees, who equi e moni o ing o mi iga e employee-speci ic agency p oblems like shi king due o ixed compensa ion, anchisees
equi e dis inc moni o ing mechanisms o ensu e alignmen wi h he anchiso ’s goals. B ickley and Da k (1987) p o ide a compa ison o an-
chisee- and employee-speci ic agency p oblems.
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204
high- isibili y loca ions o d i e sales, while se ice- ocused anchises may p io i ize ope a ional quali y and cus ome ela ionships
o e oo a ic. As a esul , he g ea e s a egic impo ance o loca ion in e ail can compel e ail- ocused anchiso s o pu sue
owne ship o p ime, high- a ic ou le s mo e agg essi ely han hei se ice- ocused coun e pa s (Achabal, 1982;Nishida, 2017). In
doing so, e ail- ocused anchiso s can educe dependence on anchisees owning key ou le s, he eby sa egua ding b and ep e-
sen a ion and ensu ing ope a ional s abili y. Addi ionally, he ypically na owe p o i ma gins in e ail sec o s compa ed o se ices
sec o s (Bha acha ya e al., 2022;Ulaga &Reina z, 2011) can compel anchiso s o e ain owne ship o a la ge p opo ion o ou le s
when he long- e m p o i e en ion ou weighs he ini ial capi al in es men . Hence,
H5: The nega i e e ec o b and equi y on e ical in eg a ion is weake in e ail- ocused ( s. se ice- ocused) anchise sys ems.
3. Da a and measu emen s
Da a. The da a sou ces we use in his s udy a e Bond’s F anchise Guide and he Annual F anchise 500 Ranking by En ep eneu
magazine. Bo h sou ces ha e been used in p io esea ch, and hei consis ency and eliabili y ha e been e i ied by se e al esea che s
(e.g., La on aine, 1995;Shane e al., 2006). Resea che s om a ious disciplines ha e used Bonds’and En ep eneu ’s da a in hei
wo k, and some ha e used he wo sou ces join ly, as we do in his s udy. Using hese wo sou ces, we compiled a panel da a se o
No h Ame ican, anchise-le el annual obse a ions o he pe iod om 2001 o 2009. Ou da a se is an unbalanced panel ha
consis s o 9151 obse a ions.
Endogenous a iables. We measu e ou i s endogenous a iable, e ical in eg a ion, as he pe cen age o company-owned uni s in
he o e all anchise sys em. We ob ain his measu e by di iding he numbe o company-owned ou le s by he o al numbe o ou le s
(company-owned plus anchised) in he anchise sys em (e.g., La on aine &Shaw, 2005;Windspe ge &Dan , 2006).
We ecognize ha ou second endogenous a iable, b and equi y, is a complex, mul idimensional cons uc and ha , like p e ious
esea ch in his domain (see Tables 1 and 5), we use p oxies o measu e his cons uc . Howe e , o a p oxy o be alid, he link
be ween he p oxy and he a ge cons uc should be based on “ easonable assump ions”(An ia e al., 2017). To achie e his, we (a)
ely on exis ing, es ablished p oxies ha we e used by p e ious esea ch in his domain and whose link o b and equi y is explici
and/o easonable, and (b) use wo p oxies a he han one o e lec he mul idimensional na u e o he cons uc . Addi ionally, in he
obus ness checks sec ion, we eplace one o he wo p oxies wi h an al e na i e hi d p oxy.
Ou i s p oxy is he ad e ising ee, which is an ongoing ee ha is con ac ually imposed by he anchiso on all i s anchisees o
he sake o p omo ing he b and h ough ad e ising. This ee is in he o m o a pe cen age o o al sales ha is paid pe iodically by
each anchisee owa d an ad e ising und ha is managed by he anchiso . Windspe ge (2004, p.1364) no es ha “The mo e
impo an he anchiso ’s b and name … he mo e ma ke ing in es men s (na ional ad e ising and p omo ion measu es) a e equi ed
o main ain he b and name alue, and he highe a e he ad e ising ees paid by he anchisees.”P io esea ch in ma ke ing (e.g.,
Ag awal &Lal, 1995;Windspe ge , 2004), economics (La on aine &Shaw, 2005;Hussain &Windspe ge , 2013), and managemen
(Nicke son &Sil e man, 2003) has employed his p oxy in i s ope a ionaliza ion o b and equi y.
8
The second p oxy is media ecogni ion. We measu e media ecogni ion as he e e se coded anking o he anchise sys em by
En ep eneu Magazine’s F anchise 500 annual anking o he op 500 No h Ame ican anchises. En ep eneu s a es ha i uses a
p op ie a y algo i hm de eloped by i s panel o expe s o ank anchise sys ems based on a se o ac o s ha include he b and. Shane
and Spell (1998, p.50) main ain ha when i comes o anchise sys ems, an “indica ion o b and name alue is he sys em’s anking in
En ep eneu Magazine.”In he same spi i , Combs e al. (2004) assembled a panel o expe s consis ing o hospi ali y execu i es and
academics, asked hem o ank he anchise chains in hei sample, and hen used his anking as a p oxy o b and equi y. Rao (1994),
Shane and Foo (1999) p o ide a de ailed jus i ica ion o his app oach o measu ing “in angible capabili ies”such as b and equi y.
Shane and Foo (1999) p o ide a de ailed desc ip ion o he anking p ocess and he magazine. In he obus ness checks sec ion, we
eplace his p oxy wi h “F anchise Fee”as an al e na i e p oxy o b and equi y.
Con ol a iables. To accoun o he con ounding e ec s o o he go e nance mechanisms, we con ol o ou commonly deployed
anchisee go e nance mechanisms ha a e o en a play wi hin a anchise sys em: selec ion, socializa ion, incen i es, and oyal y a e
(An ia e al., 2017;Bu e al., 2018). Selec ion and socializa ion a e abili y-in luencing anchisee go e nance mechanisms; and in-
cen i es and oyal y a e a e mo i a ion-in luencing go e nance mechanisms (measu es a e illus a ed in Table 3). In addi ion,
anchising esea ch sugges s ha ce ain i m-le el ac o s such as i m esou ces, geog aphic scope, expe ience in di ec dis ibu ion,
and chain size can in luence he s uc u e o a anchise sys em (Henna , 2010;Wang e al., 2020;Windspe ge &Dan , 2006). Hence,
we con ol o he e ec o i m esou ces using wo p oxies: inancing suppo (whe he he anchiso p o ides inancing suppo o i s
cu en and p ospec i e anchisees) and chain age (Dan &Kau mann, 2003;Hsu e al., 2017). P e ious esea ch (e.g., La on aine,
1992;Minkle &Pa k, 1994) has used hese wo measu es as indica o s o i m esou ces based on he a gumen s ha (a) he mo e
es ablished he anchise sys em, he highe i s capi al a ailabili y, and (b) a anchiso should al eady ha e subs an ial esou ces o be
able o inance i s anchisees. Fu he mo e, a anchiso ’s abili y o ex ensi ely engage in di ec dis ibu ion migh be in luenced by
whe he i possesses o lacks he equi ed knowledge and expe ise o doing so. Some anchiso s do no ely hea ily on di ec dis-
ibu ion simply because hey do no ha e he equi ed skill and expe ience o do ha , ega dless o any o he conside a ion, whe eas
o he s do i simply because hey can. To add ess his, we con ol o he business de elopmen ime, which is he pe iod o which he
8
Ad e ising In ensi y (i.e., ad e ising- o-sales a io), he equi alen o Ad e ising Fee in he non- anchising li e a u e, is a widely used p oxy
o b and equi y in a ious disciplines (e.g., S idha e al., 2016;Chang &Rhee, 2011;Be nile e al., 2018).
M. Kayed e al.
Jou nal o Re ailing 101 (2025) 197–216
211
BPVAR s. BPVARX. To es he obus ness o ou esul s agains he po en ial in luences o some con ol a iables, we an a BPVAR
model i.e., he model wi h endogenous a iables only, excluding all con ols. The esul s emained consis en o bo h p io dis i-
bu ions.
20
We also es ed o ime-dependen unobse ed he e ogenei y and ound no e idence o i in ou sys em.
21
Selec ion bias. To es he obus ness o ou esul s o selec ion bias, we ex ac ed he balanced sub-panel om ou unbalanced panel
and an he same model on i (Bales a and Ne lo e, 1966). The esul s emained consis en o bo h lag leng hs (L =5 and L =3) and
unde bo h p io dis ibu ions, he Wisha and Minneso a.
Sample excluding obse a ions wi h 100 % and 0 % e ical in eg a ion. To u he es he obus ness o ou esul s, we an he model
on h ee subsamples: he sample excluding obse a ions wi h 0 % e ical in eg a ion, he sample excluding obse a ions wi h 100 %
e ical in eg a ion, and he sample excluding obse a ions wi h ei he 0 % o 100 % e ical in eg a ion. The esul s emained
consis en o all h ee models and unde bo h p io dis ibu ions, Wisha and Minneso a.
Ou lie s. To es he obus ness o ou esul s o he exclusion o ex eme alues, and o u he con i m he p esence o he e ec , we
an he BPVARX model on ou immed subsamples (excluding he ±5 pe cen iles and he ±10 pe cen iles). The esul s emained
consis en unde bo h p io dis ibu ions, Wisha and Minneso a.
6. Discussion
In ou endea o o calib a e he impac o b and equi y on e ical in eg a ion in anchise sys ems, we (a) e iewed exis ing
esea ch and p esen ed a hypo hesis ha ep esen s he majo i y o a ailable e idence on he opic, (b) d ew on powe -dependence
heo y (Eme son, 1962) and he heo y o sel -en o cing con ac s (Klein, 1985;2002) and p esen ed a i al hypo hesis, (c) es ed
hese wo compe ing hypo heses using a Bayesian Panel Vec o Au o eg essi e (BPVARX) model on a la ge panel da a se , and (d)
conduc ed a bounda y condi ions analysis. Ou esul s show a powe ul bu lagging in e se e ec o b and equi y on e ical in e-
g a ion such ha highe b and equi y leads o less e ical in eg a ion in a anchise sys em. This nega i e e ec is weake in anchise
sys ems wi h in e na ional p esence and in e ail- ocused anchises, and s onge in anchise sys ems wi h mo e inancial esou ces.
Fig. 3. Impulse esponse unc ions (IRFs) o he mode a ion e ec o i m esou ces on he link be ween b and equi y and e ical in eg a ion.
“Ad”indica es he con ac ual ad e ising ee in he anchise sys em (a p oxy o b and equi y). “Media”indica es media ecogni ion (a second p oxy
o b and equi y) as e lec ed by En ep eneu Magazine’s annual anking o anchise sys ems. The impulse a iables a e Ad and Media. The
esponse a iable is VI, he deg ee o e ical in eg a ion in he anchise sys em as e lec ed by he pe cen age o company-owned ou le s. The g aph
acks how VI esponds o shocks in Ad and Media, demons a ing he posi i e mode a ion e ec o i m esou ces (p oxy: i m age) on he link
be ween b and equi y and e ical in eg a ion.
20
Impulse Response Func ions o his model and all emaining models a e a ailable on eques .
21
We es ed o ime-dependen unobse ed he e ogenei y using i e app oaches: linea ime ends (using Yea as a con inuous a iable), e en -
based yea -g ouping dummies (du ing s. be o e g ea ecession), economic pe o mance-based yea -g ouping dummies (du ing low s. non-low
economic g ow h pe iod), and hei combina ions. The esul s emained unchanged ac oss all i e models. Including yea dummies in a high-lag
PVAR sys em on a sho o unbalanced panel o en esul s in o e pa ame e iza ion and mul icollinea i y, ende ing a PVAR sys em uns able/un-
speci ied (Bal agi, 2005;Hamil on, 1994), as demons a ed in ou analysis.
M. Kayed e al.

Jou nal o Re ailing 101 (2025) 197–216
212
6.1. Theo e ical con ibu ions
Ou s udy makes se e al con ibu ions o ma ke ing heo y. Fi s , we ad ance he anchising and e ailing li e a u es by p o iding
no el insigh s in o he decades-old deba e on he impac o b and equi y on e ical in eg a ion in anchise sys ems. In doing so, we
depa om p e ious esea ch in se e al ways. Theo e ically, while he majo i y o exis ing esea ch has examined he opic h ough
he lenses o ansac ion cos heo y and agency heo y, we g ound ou in es iga ion in he powe -dependence heo y and he heo y o
sel -en o cing con ac s. Me hodologically, his is he i s s udy o explo e causal, lagged, e e se, and mode a ion e ec s. Mo eo e ,
we no only demons a e he nega i e causal e ec o b and equi y on e ical in eg a ion and iden i y key mode a ing ac o s, bu
mo e impo an ly, we unco e he in ica e dynamics o his e ec . In pa icula , we e eal he empo al p og ession o he e ec ,
which begins slowly bu con inues building momen um, wi h only a small po ion o he e ec ma e ializing in he sho un and he
majo i y o he e ec mani es ing in he long un. Mo eo e , we ind e idence o a less p onounced bu p esen ecip ocal e ec . These
insigh s we e acili a ed by he use o a Bayesian Panel Vec o Au o eg essi e model, which allowed us o in es iga e lagged e ec s
while con olling o endogenei y and i m-le el he e ogenei y, examine empo al causa ion, and assess e e se causali y. Ou s udy,
one o he ew in he e ailing li e a u e o u ilize his app oach, p esen s an example o how dynamic esea ch me hods can add ess he
limi a ions o p io s udies o p o ide mo e nuanced, comp ehensi e, and in-dep h insigh s in o a numbe o ma ke ing phenomena
(see Tables 1 and 2).
Second, ou indings con ibu e o he b oade channels’li e a u e. The in luence o b and equi y on dis ibu ion channels, as a
gene al phenomenon, is s ill a ela i ely unde - esea ched opic in ma ke ing despi e p ac i ione s’and schola s’ ecogni ion o he
c ucial ole b ands play in dis ibu ion channels (Hoe le &Kelle , 2003). Indeed, ex an esea ch in ma ke ing on he impac o b and
equi y on dis ibu ion ocuses mos ly on channel coo dina ion and p ima ily in es iga es how an ups eam i m’s b and equi y in-
luences he ac ical beha io o i s downs eam channel pa ne s. Resea ch on he impac o b and equi y on channel go e -
nance/s uc u e is ela i ely limi ed. Ou ex ensi e e iew o he channels’li e a u e has iden i ied wo heo e ical a gumen s abou
he impac o b and equi y on channel go e nance bu no empi ical e idence. Bo h a gumen s a e in line wi h ou iew on he opic.
The i s is by Ghosh and John (1999) who posi ha when b and equi y is high, he i m is mo e capable o using ma ke go e nance,
whe eas weake b ands “handicap” he i m om doing so. The second a gumen is by Coughlan e al. (2006, p.351) who a gue ha
when b and equi y is high, e ical in eg a ion in o dis ibu ion is no only unnecessa y bu a he “was e ul.”Aside om hese wo
heo e ical a gumen s, ma ke ing heo y seems ela i ely silen on he subjec despi e i s ecogni ion ha “b and equi y in luences
Table 5
O e iew o esea ch in ma ke ing on he impac o b and equi y on dis ibu ion channels.
S udy Con ex Channel
Coo dina ion/
Go e nance
Channel Membe
Unde S udy
B and Equi y
Ope a ionaliza ion
Key Rele an Findings
Mon gome y
(1975)
G oce y S o e /
Supe ma ke
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
Ad e ising S onge b ands ha e be e chance o being
accep ed a s o es and in gaining shel -space.
Fa is e al.
(1989)
G oce y S o e /
Supe ma ke
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
% o su ey subjec s who
would choose he b and
o e i als
Re aile s p o ide be e in-s o e
me chandising and s ocking o s onge
b ands.
Fade and
Schmi lein
(1993)
G oce y S o e /
Supe ma ke
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
Ma ke sha e S onge b ands ha e highe a ailabili y a
e aile s. Re aile s who ca y ew b ands
ca y hose wi h highe b and equi y.
Lal and
Na asimhan
(1996)
No Applicable
(Analy ical
model)
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
Ad e ising Re aile s a e willing o accep lowe ma gins
on s onge b ands because hey see hem as
d i e s o s o e a ic. Re aile s a e mo e
likely o ad e ise s onge b ands because
cus ome s use hem o gauge he s o e’s
o e all p ice le els.
Bell e al. (1999) G oce y S o e /
Supe ma ke
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
A e age numbe o
pu chases o he b and pe
consume
Du ing p omo ions, e aile s s ockpile
s onge b ands mo e han weake b ands.
Besanko e al.
(2005)
G oce y S o e /
Supe ma ke
Channel
Coo dina ion
B and Selle
(Downs eam
i m)
Ma ke sha e S onge b ands ecei e highe p omo ion
pass- h ough (by e aile s) han weake
b ands.
This S udy F anchising, 44
indus ies
Channel
Go e nance
B and Owne
(Ups eam i m)
Ad e ising, B and
Ranking, F anchise Fee
As b and equi y inc eases, anchiso s ely
less on downs eam e ical in eg a ion in
go e ning hei anchise chains. This is
because b and equi y unc ions as
sa egua ding asse ha sol es many channel
go e nance p oblems h ough con ac ual
sel -en o cemen , which p o ides an
e ec i e sa egua d agains anchisees’
oppo unism and alle ia es he need o
e ical bu eauc a ic con ol h ough
e ical in eg a ion.
M. Kayed e al.
Jou nal o Re ailing 101 (2025) 197–216
213
go e nance di ec ly.”(Ghosh &John, 1999, p.140). Hence, ou indings, albei om he anchising con ex , p o ide much needed
e idence ha suppo s hese wo heo e ical iews on he impac o b and equi y on e ical in eg a ion. In doing so, we sc a ch he
su ace o an impo an ela ionship ha is ecognized by bo h p ac i ione s and schola s, ye no su icien ly esea ched in ma ke ing.
Table 5 p o ides a summa y o exis ing esea ch in ma ke ing on he impac o b and equi y on dis ibu ion and illus a es how ou
s udy ad ances ha body o esea ch.
Pa icula ly, ou indings add o he ich channel go e nance li e a u e by p oposing b and equi y as an al e na i e go e nance
mechanism ha enables he i m o go e n i s dis ibu ion channel e ec i ely wi hou he need o e ical in eg a ion. The channels
go e nance li e a u e p o ides se e al examples o such al e na i e go e nance mechanisms ha add ess go e nance issues wi hou
he need o e ical in eg a ion. Fo ins ance, Ande son and Wei z (1992) discuss he ole o pledges in building us and commi men
be ween pa ne s, e ec i ely educing oppo unis ic beha io . S ump and Heide (1996) emphasize he impo ance o ca e ul pa ne
selec ion, ailo ed incen i e design, and igo ous moni o ing o ensu e alignmen o in e es s and pe o mance s anda ds. Heide and
John (1992) highligh he e icacy o ela ional no ms, such as lexibili y, in o ma ion sha ing, and long- e m o ien a ion, in os e ing
coope a i e beha io and mi iga ing con lic s wi hin channel ela ionships.
Thi d, ou indings ex end he b and equi y li e a u e by iden i ying a new s a egic ole o b and equi y ha goes beyond cus-
ome s, compe i o s, employees, and sha eholde s o each channel pa ne s. B and equi y is a i al s a egic asse ha can help a
anchiso in go e ning i s anchise sys em by ac ing as a “sa egua ding asse ” ha b idles anchisees’oppo unism h ough
con ac ual sel -en o cemen , and hus alle ia e he need o deep e ical in eg a ion.
Fou h, we con ibu e o an unde - esea ched s eam in ma ke ing s a egy ha is conce ned wi h unde s anding he in e ac ions
among ma ke ing mix elemen s. Mos ma ke ing s a egy esea ch ocuses on a pa icula elemen o he ma ke ing mix such as
channel, b and, o p icing (S ini asan, 2006). Bu , in eali y, i ms c a hei ma ke ing s a egy as an in e wined whole and conside
syne gies, adeo s, and in e dependencies among ma ke ing mix elemen s (Ga ignon &Hanssens, 1987). Hence, explo ing such
in e ac ions and in e dependencies is c ucial o bo h schola ship and p ac ice. In his spi i , we add o he ma ke ing in e ac ions
esea ch s eam (e.g., Ga ignon &Hanssens, 1987;S ini asan, 2006) by examining he dynamic associa ion be ween b and and
dis ibu ion.
6.2. Manage ial implica ions
Ou s udy o e s a numbe o aluable, ac ionable insigh s ha can help senio manage s in hei s a egic decision making. Fi s , o
channel manage s o anchise sys ems, ou esea ch p o ides no el insigh s in o he long-s anding ques ion o whe he o e ically
in eg a e o no o in eg a e. Despi e he esu ging in e es in e ical in eg a ion amongs anchising and e ailing p ac i ione s (and
in line wi h a signi ican body o schola ly wo k in ma ke ing), we ad ise agains unnecessa y e ical in eg a ion especially in si -
ua ions whe e he anchise enjoys a mode a e o high le el o b and equi y. Whe eas he emp a ion o con ol migh compel some
manage s o pu sue e ical in eg a ion, i is a cos ly, isky in es men ha demands la ge esou ce commi men s ha o en ou weigh
he o eseeable gains o such a en u e. The e o e, i should only be conside ed in si ua ions o low o uns able b and equi y and only
a e exhaus i e sc u iny. As e idenced in his s udy, as he b and equi y o a anchise sys em inc eases, he anchiso leans mo e on
i s b and o sa egua d i sel agains anchisees’oppo unism and o go e n i s anchise sys em e ec i ely wi hou he need o deep
e ical in eg a ion.
Second, we o e b and manage s o anchise sys ems use ul empi ical e idence ha can help hem in selling b and building
ini ia i es o senio managemen and o he s akeholde s. B and manage s a e o en aced wi h he challenging ask o selling b and
building ini ia i es o senio managemen and o he o ganiza ional s akeholde s due o he in angibili y and long- e m na u e o he
bene icial ou comes o such ini ia i es. This s udy can help b and manage s o anchise sys ems in gaining o ganiza ional suppo o
b and building ac i i ies by shedding ligh on an unde - ecognized, s a egic bene i o b and equi y –by s eng hening i s b and
equi y, he anchiso mi iga es many channel go e nance issues h ough con ac ual sel -en o cemen which educes he need o
deep e ical in eg a ion. This can make he challenging ask o selling b and building ini ia i es o a ious o ganiza ional s ake-
holde s much easie . Addi ionally, he documen ed lagged na u e o he impac o b and equi y on e ical in eg a ion unde sco es he
need o i ms o adop a long- e m pe spec i e when e alua ing he e u ns on b and in es men s as hese e u ns o en acc ue
g adually and compound o e ime. As e idenced in his s udy, b and equi y can ha e p o ound and posi i e in luences on ce ain long-
e m ma ke ing decisions (e.g., mi iga ing he need o he cos ly and isky e ical in eg a ion o he channel). Howe e , such posi i e
in luences become appa en only o e ime which emphasizes he impo ance o a s a egic ocus when i comes o in es men s in
b and equi y.
Thi d, senio ma ke ing execu i es (e.g., CMO) o anchise sys ems, o en ind hemsel es dealing wi h a capi al alloca ion
conund um whe e di e en ma ke ing s a egies (e.g., in es in di ec dis ibu ion, in es in s eng hening he b and) compe e o
cons ained inancial esou ces. Rema kably, whe eas “gaining o ganiza ion suppo and esou ces o b and building ac i i ies is
o en di icul , e en wi h a consensus ha b ands a e s a egically impo an o he o ganiza ion,”(Biel &Aake , 1993, p.333) he
desi e o con ol compels many execu i es o pu sue e ical in eg a ion, e en hough i is a cos ly, isky in es men ha demands
la ge esou ce commi men s ha o en ou weigh he o eseeable gains o such a en u e (Ba eman, 2016). Ou esul s sugges ha , in
anchise sys ems, in es men s in b and equi y may o e a lowe isk/ ewa d a io and a be e hedge agains unce ain y han many
o he in es men s. This is because b and in es men s can be seen as “dual in es men s”di ec ly in he b and and indi ec ly in he
channel (b and in es men s signi ican ly mi iga e he channel go e nance p oblem which educes he need o deep in ol emen in
di ec dis ibu ion).
M. Kayed e al.
Jou nal o Re ailing 101 (2025) 197–216
214
6.3. Limi a ions and u u e esea ch di ec ions
Ou wo k has some limi a ions ha o e use ul a enues o u u e esea ch on he opic. Fi s , despi e he b oadness o ou con ex
(44 indus ies) and i s adequacy o he esea ch ques ion, and despi e ou eliance on well-es ablished measu es om he li e a u e, he
gene alizabili y o ou esul s could be u he imp o ed h ough he con e gence o indings om a ious s udies using al e na i e
measu es in di e en con ex s. Hence, u u e esea ch could examine he obus ness o ou esul s o di e en con ex s and measu es.
This will p o ide an e en mo e nuanced unde s anding o he ela ionship be ween b and equi y and e ical in eg a ion in anchising
while assessing he consis ency o ou indings ac oss di e se con ex s. Mo e impo an ly, u u e esea ch could examine whe he ou
indings can be gene alized o non- anchising e ail se ings. Second, due o da a limi a ions and because he ocus o his s udy is o
es ablish he impac o b and equi y on e ical in eg a ion, we do no es he unde lying p ocess by which highe b and equi y leads
o less downs eam e ical in eg a ion in anchise sys ems. Mo eo e , doing so would equi e measu ing such concep s as depen-
dence, sel -en o ceabili y, incen i es, sa egua ds, eplaceabili y, e mina ion sanc ion, and oppo unis ic beha io . Such cons uc s
na u ally lend hemsel es o su ey da a and canno be easily cap u ed by he da a sou ces we use in his s udy. Hence, u u e esea ch
may apply di e en measu emen s, use al e na i e con ex s, and es some o he links in he unde lying p ocess. In addi ion o ha ,
u u e esea ch could examine whe he he same e ec holds o backwa d e ical in eg a ion, pa icula ly because he e is some
anecdo al e idence sugges ing ha e aile s such as Walma and Amazon ely on hei b and equi y in go e ning hei supply chain
wi hou he need o acqui e hei supplie s. Finally, as we highligh ed ea lie , he e ec o b and equi y on a ious aspec s o dis-
ibu ion s a egy is a much unde - esea ched opic in ma ke ing. Hence, u u e esea ch is u ged o u he explo e his esea ch a ea
and examine o he ace s o he in luence o b and equi y on dis ibu ion s a egy.
Decla a ion o gene a i e AI and AI-assis ed echnologies in he w i ing p ocess
Du ing he p epa a ion o his a icle, some o he au ho s used Cha GPT in o de o conduc g amma checking, pa aph ase
sen ences, e i y ci a ion s yle, sea ch o published pape s, summa izing ex , analyzing ex , and o he w i ing- o s yle- ela ed
assis ance. A e using his ool, he au ho s ca e ully e iewed and edi ed he con en as needed and ake ull esponsibili y o he
con en o he publica ion.
Acknowledgmen s
The au ho s a e hank ul o he aluable eedback p o ided by Rob Palma ie , Venky Shanka , and pa icipan s a he Theo y +
P ac ice in Ma ke ing (TPM) Con e ence, he AMA Win e Academic Con e ence, he Eu opean Ma ke ing Academy (EMAC) Con-
e ence, he ISBM Academic Con e ence, he In e na ional Socie y o F anchising (ISoF) Con e ence, and o he con e ences and
semina s. Funding o his esea ch was p o ided by he Ins i u e o he S udy o Business Ma ke s (ISBM) a Penn S a e. Howe e , he
con en s o his esea ch e lec he iews o he esea che s who a e solely esponsible o he ac s and he accu acy o he da a
p esen ed he ein. This esea ch is suppo ed by unding o Manish Kacke om he Social Sciences and Humani ies Resea ch Council
o Canada (SSHRC). Mohammad Kayed is g a e ul o he gene ous inancial suppo om he Social Sciences and Humani ies Resea ch
Council (SSHRC) o Canada, awa d numbe 767-2016-2275.
Supplemen a y ma e ials
Supplemen a y ma e ial associa ed wi h his a icle can be ound, in he online e sion, a doi:10.1016/j.j e ai.2025.01.007.
Re e ences
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