A Model of Trust and Compliance in Franchise Relationships

A model of trust and compliance in franchise relationships
Mark A.P. Davies

a,1
, Walfried Lassar
b,2
, Chris Manolis
c,3
, Melvin Prince
d,
, Robert D. Winsor
e,4
a
School of Management and Languages, Heriot-Watt University, Riccarton, Edinburgh, Midlothian, Scotland EH14 4AS, United Kingdom
b
Marketing Department, College of Business, Florida International University, 11200 SW 8th Street, RB307C; Miami, FL 33199, USA
c
Department of Marketing, Williams College of Business, Xavier University, 3800 Victory Parkway, Cincinnati, OH 45207-3214, USA
d
Marketing Department, School of Business, Southern Connecticut State University, 501 Crescent Street; New Haven, CT 06515, USA
e
College of Business Administration, Loyola Marymount University, One LMU Drive, Los Angeles CA 90045, USA
a r t i c l e i n f o a b s t r a c t
Article history:
Received 27 September 2008
Received in revised form 22 August 2009
Accepted 23 September 2009
Available online 23 October 2009
Despite the danger of franchisee non-compliance as a severe impediment to overall franchise
operation and performance, there is currently minimal understanding of the key factors that
lead to these behaviors. Using a foundation of relational exchange theory, we construct and test
a model that demonstrates how two distinct forms of trust, based upon perceptions of
franchisor integrity and franchisor competence, are critical to explaining the roles that
relational conict and satisfaction play in inuencing franchisee compliance. Implications of
these ndings are then demonstrated to have compelling relevance to the effective
management of franchise systems.
2009 Elsevier Inc. All rights reserved.
Keywords:
Franchising
Trust
Satisfaction
Conict
Compliance
Reciprocity
1. Executive summary
Business format franchise organizations recognize that the success of their system is directly inuenced by their ability to
design and enforce rigid operational standards across their network of retail units. Yet franchise networks can be characterized as a
community of entrepreneurs, each of which has aspirations toward autonomy and innovativeness. As a consequence, a signicant
challenge for franchisors concerns their ability to enhance franchisee compliance with these standards without thwarting
franchisee ambition.
While dysfunctional relationship conict has long been understood to adversely affect franchisee compliance (Grnhagen and
Dorsch, 2003), the mechanisms by which this occurs are not well understood. Although trust has been advanced as playing a
critical role in facilitating relational exchange and reducing the harmthat conict exerts on compliance, limited attention has been
given to the specic role that trust and its various dimensions play in franchisee compliance.
Using a theoretical foundation of relational exchange to explain the critical role that trust plays in enhancing franchisee
compliance, the authors advance a series of multidimensional models which clarify the interrelated roles of satisfaction, conict,
and trust as they relate to levels of compliance. These models are then assessed empirically by comprehensively surveying 135
franchise entrepreneurs belonging to a single automobile service franchise system. Conrmatory factor analysis is used for
validation of our measures, and structural equation modeling is used to test our hypotheses.
Journal of Business Venturing 26 (2011) 321340
Corresponding author. Tel.: +1 203 327 2097; fax: +1 203 353 4300.
E-mail addresses: m.a.p.davies@hw.ac.uk (M.A.P. Davies), lassarw@u.edu (W. Lassar), manolis@xavier.edu (C. Manolis), melvinprince@sbcglobal.net
(M. Prince), rwinsor@lmu.edu (R.D. Winsor).
1
Tel.: +44 131 451 8266.
2
Tel.: +1 305 340 2571; fax: +1 305 348 3792.
3
Tel.: +1 513 745 2046; fax: +1 513 745 3692.
4
Tel./fax: +1 310 338 7413.
0883-9026/$ see front matter 2009 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusvent.2009.09.005
Contents lists available at ScienceDirect
Journal of Business Venturing
The results of our analyses clearly distinguish between trust in franchisor integrity and trust in franchisor competence, and
demonstrate that each is differentially impacted by relationship conict. We further demonstrate that these two forms of trust are
robust predictors of franchisee compliance to organizational norms. We contend that this multidimensional conceptualization of
trust within conditions of relational exchange offers signicant advantages to franchisors in their efforts to improve franchisee
compliance with organizational policies.
Further, by positioning our results within the context of relational exchange theory, we argue that contractual parameters of a
franchise relationship, while necessary, are generally insufcient for aligning the interests of franchisors and franchisees such that
compliance is optimized. To augment contractual policies, norms of reciprocity can be invoked by introducing relational forms of
governance (Blau, 1964). In franchise environments characterized by high levels of perceived integrityand to a lesser extent,
competenceand where entrepreneurial aspirations for autonomy are supported, these norms of reciprocity can then be expected
to lead to cooperative behaviors and a higher level of compliance with relational expectations.
2. Opportunities, entrepreneurship, and franchising
In constructing a framework for conceptualizing the domain of entrepreneurship, Shane and Venkataraman (2000) distinguish
between two distinctive processes by which entrepreneurs engage in market opportunities: discovery and exploitation. This
domain of entrepreneurship can extend to those who can fully exploit the opportunities made available to others, including the
acquirers of these opportunities (Shane and Venkataraman, 2000). Franchising is a systemof economic and relational organization
(Venkataraman, 1997) that rst identies opportunities in the marketplace and then furnishes these opportunities to other
entrepreneurs. Franchising thus represents a compelling area of business research, as it introduces creative meansends (Eckhardt
and Shane, 2003) in its embrace of both the fundamental object of entrepreneurship (opportunity), and also a fundamental process
by which the major barriers to entrepreneurial exploitation of these opportunities are diminished.
Franchising also importantly embodies a unique formof business collaboration between multiple entrepreneurs (Baucus et al.,
1996; Leblebici and Shalley, 1996; Shane and Hoy, 1996). As a carefully orchestrated entrepreneurial partnership, franchising
requires the complex delineation and integration of individual entrepreneurial roles for both franchisor and franchisee (Kaufmann
and Dant, 1998). Functioning in diverse roles by developing new markets and products, identifying new pockets of demand,
supplying necessary capital, and in absorbing the risks associated with these activities, franchisees become indispensable partners
in the economic ventures of the retail franchisor (Kaufmann and Eroglu, 1999; Minkler, 1992). This complex entrepreneurial
partnership, which is a distinctive feature of franchising, creates unique opportunities and hazards for each partner within the
relationship.
Unique hazards exist within franchising because the protable and comprehensive exploitation of market opportunities
depends heavily upon the dedicated and unconditional compliance of all entrepreneurial partners. Although franchising
represents one formof entrepreneurship where autonomy and dependence can coexist synergistically (Dant and Gundlach, 1998),
franchisees typically have similar motivations to those of conventional entrepreneurs (Stanworth, 1995). This makes the
necessary balance between process conformity and entrepreneurial autonomy a major challenge in franchising.
Despite the potential benets that arise from this balance between autonomy and imposed control, and despite franchisees'
initial acceptance of control at the commencement of the franchise relationship, issues of compliance are likely to emerge in the
evolution of their association as sources of conict. This is because as relationships evolve, franchisees gradually learn their
franchisor's operational methods and strategies, as well as their strengths and weaknesses. With increasing tenure and success,
franchisees are more likely to believe their performance is attributable to their own entrepreneurial skills and efforts. In this way,
ambitious and successful franchisees can lose their commitment to the operational formula of the franchise organization as they
become more condent in their own entrepreneurial abilities (Buchanan, 1992), leading to lower levels of compliance as
experience is gained (Stanworth, 1995). This condence is reinforced by the tendency of entrepreneurs to display signicant levels
of self-serving attribution bias (Rogoff et al., 2004) or fromentrepreneurs' signicantly greater likelihood of believing in their own
self-efcacy (Chen et al., 1998).
As a partial consequence of these biases, franchisees will tend to progressively reassess relative franchisor value over the course
of the franchise relationship (Morrison, 1998; Grnhagen and Dorsch, 2003; Phan et al., 1996). Consistent with this, Gassenheimer
et al. (1996) observed that franchisees' assessments of the competitive position of the franchise system decrease as they gain
greater franchise experience. As a result, the perceived contribution and role of the franchisor becomes marginalized and its
relative knowledge-based power erodes. The franchisee will then often begin to question the fairness of the contract and become
dissatised. When these perceptions collectively increase across the population of franchisees, the balance of power can shift away
from the franchisor and begin to favor the franchisees, leading to system-wide hazards to commitment and compliance.
The challenges that accompany efforts to balance franchisee aspirations for entrepreneurial autonomy with the franchisor's
efforts to enforce compliance to operational standards are likely to intensify as the relationship matures, resulting in progressively
more conict. In most of these partnerships, the relationship evolves through various stages where conict, trust, and efforts to
enforce compliance take on various degrees of importance to each partner at different times. As a result of this complex and
continual metamorphosis within a franchise relationship, this area merits particular investigation within the research domain of
entrepreneurship (Kaufmann and Dant, 1998).
According to Geyskens et al. (1999), few prior studies have been able to shed light on understanding the determinants of
relative channel partner performance or satisfaction. Consequently, the purpose of this research is to more fully understand the
nature of the intricate relationship between franchisor and franchisee, and the inuences on this relationship with regard to issues
322 M.A.P. Davies et al. / Journal of Business Venturing 26 (2011) 321340
of autonomy and compliance. Specically, our goal is to gain greater understanding into how to better protect the operational
interests of the franchisor in light of franchisees' proclivities for entrepreneurial independence. Overall franchise performance is
strongly dependant upon the disciplined and unproblematic coordination and cooperation between franchisor and franchisees, as
this operational diligence is necessary for maximizing brand value, ensuring consistency in product and service output, and most
fully capitalizing upon management support (Pitt et al., 2003). In short, the careful harmonization of franchisor and franchisee
goals and interests, and the compliance of franchisees to the organizational rules and norms which align these goals, serve to
minimize the risk of franchisee defaulta persistent hazard which can severely impair the value of a franchise. Key to managing
these risks is a thorough understanding of how relational conict and trust inuence franchisee compliance to these
organizational rules and norms. In this regard, we develop a model that more effectively explains the pivotal importance of
franchisee trust within franchise relationships as they impact compliance with operational norms.
Previous research has treated trust as a unidimensional factor that can inuence, or be inuenced by, other attitudes or
behaviors such as compliance (e.g.: Geyskens et al., 1999). In contrast to previous studies on compliance (Dickey et al., 2007), we
examine the inuence of trust fromtwo distinct perspectives, derived fromfranchisees' perceptions of franchisor competence and
franchisor integrity. We then examine the differential impact of satisfaction and conict as antecedents, rather than as
consequences of trust, with a particular focus on howthese two forms of trust then individually affect franchisee compliance with
operational norms.
5
We propose that franchisee autonomy can be conceptualized on two levels within the franchise relationship. On one level, in
principle, the franchise contract recognizes and addresses the need for franchisee career growth, ambition, and economic success,
and the franchisor thereby becomes capable of providing the level and quality of support necessary for the realization of these
entrepreneurial aspirations. We identify the effort and capability demonstrated by the franchisor in meeting these needs as
franchisor competence.
Conversely, the manner in which the franchisee's quest for autonomy is regarded and accommodated within the franchise
relationship corresponds to the franchisee's need for respect, dignity, and consistency when dealing with the franchisor. We
identify this due process, reecting procedural fairness, as franchisor integrity.
6
Hence, we identify two constructs of trust, each of
which exerts a unique and direct bearing on franchisee compliance: competence trust and integrity trust. We then clearly
demonstrate that this dual conceptualization of trust can effectively explain franchisee compliance behavioran aspect of
franchise relationships that is crucial to franchise success but which has been inadequately understood within traditional
interpretations of trust.
Whereas many studies have examined various aspects of franchising from the perspective of franchisors, little research has
been conducted into franchise relationships fromthe franchisee perspective (Hing, 1995; Grnhagen and Mittelstaedt, 2000; Phan
et al., 1996). As a result, there is little understanding as to franchisee motivations or considerations regarding compliance with
organizational policies and procedures, or the relational features that might inuence this behavior.
This article is organized as follows. We begin with an explanation of constructs that embody our conceptual model, dening
satisfaction, conict, trust, and compliance. We develop hypotheses linking these constructs, treating trust as a multidimensional
construct. We then present the research method, procedures and measures adopted. We discuss our ndings and implications
using structural equation modeling. Finally we conclude, making suggestions for further research.
3. Factors impacting franchisee compliance
3.1. The franchise problem
Franchising involves an organizing rm (as franchisor) selling a proven business format that entitles a semi-autonomous
franchisee to the rights to market goods or services under the organizer's brand name. Although the franchisor and franchisee are
legally distinct organizations (Mendelsohn, 1995), the economic rewards from, and responsibilities to, the franchise system are
interdependent between the parties (Kumar et al., 1995). In this business system, economic rewards are generally maximized
where the interests of franchisors and franchisees are most effectively aligned through both the relationship agreement (the
franchise contract) and also through voluntary participant behaviors. Nevertheless, it is the franchisor that generally species the
responsibilities of each relational partner, and how the assets and economic rewards are distributed within the relationship,
setting the stage for potential disagreement and tension between the parties over the course of the franchise relationship.
7
Financial interdependence between two entrepreneurially motivated partners, combined with the asymmetrical exercise of
power within the relationship (such that franchisors often focus more carefully upon preserving their rights rather than tending to
5
Since conict is relatively enduring in franchise relations as a result of franchisees' continuous aspirations toward autonomy, we assert that treating
satisfaction and conict as antecedents to trust (and compliance) is a more realistic sequencing than as consequences, and thus represents a signicant advance
on previous trust-compliance models. As antecedents, this treatment of satisfaction and conict is also a departure from Morgan and Hunt (1994).
6
Integrity refers to adherence to a set of principles deemed morally acceptable to the relational partners (Mayer et al., 1995).
7
Due to the franchisor's dominant role in specifying the parameters of the relationship, franchisors may exploit their franchisees. For example, franchisors may
exploit their franchisees to meet expansion plans, or neglect their franchisees' needs for autonomy by tying them to exclusive suppliers (Felstead, 1992; Michael,
2000; Storholm and Scheuing, 1994; Zeller et al., 1980). Furthermore, as Felstead (1991) notes, many franchise agreements can be modied unilaterally by the
franchisor. Each of these actions can induce conict and breach franchisee trust with their franchisor. Such potentialities in a franchise agreement represent a
highly risky opportunity for a franchisee, necessitating high levels of trust with their franchisor. Accordingly, franchisees will determine an acceptable level of
risk after calculating potential losses against the anticipated benets of joining a franchise.
their obligations to franchisees (Pizanti and Lerner, 2003)), can lead to frustrating conditions for franchisees. This frustration is
exacerbated because franchisees invest their own capital into an enterprise they initially do not fully understand, and which has
meticulous operational constraints (enforced through formal legal contracts) that serve to discourage some forms of
entrepreneurial aspirations. Although franchising represents a uniquely compelling and effective form of entrepreneurial
relationship, franchising also imposes a substantial penalty on entrepreneurial preferences for independence and self-governance.
3.2. Goal incongruity and conict
As the fundamental interests of the franchisor and franchisee are often dissimilar (Dant and Nasr, 1998; Harmon and Grifths,
2008) and sometimes diametrically opposed (Michael and Combs, 2008), basic conicts between franchisors and single-unit
franchisees regarding priorities, timing, and revenue streams are common (Garg and Rasheed, 2006). For example, a franchisor's
claimto an income streamis generally superior to those of its franchisees. That is, franchise royalties are typically based upon gross
sales gures, whereas franchisee protability is greatly inuenced by operating costs. Thus, franchisors may implement a strategy
of market share growth or sales maximization without regard to store costs, thereby impairing the protability objectives of
franchisees (Phan et al., 1996). Additionally, a single-unit franchisee entrepreneur is contractually limited to the nancial returns
fromhis/her single unit, whereas the franchisor's income is aggregated fromall of its franchisees combined. As a result, franchisors
can remain protable even when many individual franchisees fail to prosper, leading to considerable divergence in levels of
satisfaction (and trust) among the partners.
As noted above, however, even when all partners within a franchise organization mutually perceive congruence between
economic interests, conict is likely to emerge between franchisor and franchisee due to the inherent incompatibility between
autonomy and control. That is, the apparent incongruity that exists between the franchisor's need for standardization and control
of their franchise operation and reputation, and the franchisee's desire for autonomy, inevitably leads to conict and diminished
compliance within franchise relationships (Kidwell et al., 2007; Dickey et al., 2007).
3.3. Trust as a cohesive element in franchise relationships
As a system characterized by mutual interdependence but asymmetrical control, the success of franchising is heavily
contingent upon signicant manifestations of trust between the franchisor and franchisee. In practical terms, the franchisor relies
upon the franchisee to perform at expected levels and within rigidly specied guidelines, while the franchisee relies upon the
franchisor for both promotional support (brand equity) and also managerial support (training and process design). This mutual
reliance between franchisor and franchisee can make interpersonal and inter-organizational roles and relationships more
ambiguous, leading to disagreement over issues of control.
When franchisees feel they can no longer trust the franchisor, they may come to believe that their contractual obligations are
no longer aligned with their own economic or entrepreneurial interests. These beliefs can lead to diminished efforts to comply
with franchise regulations, or even acts of contractual deance. Franchisors thus need to maintain the trust and goodwill of their
franchisees because a disgruntled franchisee that neglects or subverts operational policies will weaken the brand identity of the
franchise (Baucus et al., 1996), leading to both diminished system sales and later recruitment difculties.
8
Growth and expansion
objectives will compound the gravity of this issue. Additionally, shifts in franchisee trust (with respect to their franchisors) likely
reect the relative level of inuence, or balance of power, between the franchise parties.
9
Since trust is critical to mutual
protability within the franchise system, franchisors have an economic interest in maintaining or bolstering franchisees' trust in
them.
Entrepreneurship in general is highly dependent upon trust as a facilitator of cooperative exchange under conditions of
uncertainty (Venkataraman, 1997). Franchising represents a unique form of entrepreneurship because it systematically reduces
the uncertainty that normally exists between independent entrepreneurs (a venture and its suppliers, for example) by leveraging
trust among interdependent entrepreneurs within the same venture (franchisors and franchisees). Consequently, franchising
represents a system of entrepreneurship that is particularly reliant upon interpersonal and intra-organizational trust. In this way,
trust in a franchising context functions as the bond that reinforces the contractual alignment of interests between the relational
parties of a franchise, thereby ensuring mutually protable outcomes.
3.4. Relational governance as a complement to contractual governance
Legal contracts bring a measure of specicity regarding control over the ways franchise members behave. Such contracts
supposedly commit franchisees, in pursuing their operational and strategic goals, to act within the parameters explicitly specied
8
In addition to the ill will created, franchisors that aggressively seek to terminate franchisees will incur considerable set-up costs in replacement with new
franchisees. Similar agency costs have been identied in recruiting and monitoring new channel members in other business-to-business relationships (Davies
and Prince, in press).
9
The legal contracts for maintaining control over franchisee behavior become ineffective when franchisors lack strong brand names, lack effective support
packages, and fail to enforce tight guidelines on franchise policy (Quinn and Doherty, 2000). In such cases, the locus of power shifts in favor of the franchisee.
Although franchisors can offer their better performing franchisees a chance to enter multi-unit franchisees as a strategy for discouraging opportunism (Brickley
and Dark, 1987), those franchisees equipped with considerable managerial and geographical-specic experience have opportunity and motive for realizing their
entrepreneurial vision, with less tolerance of franchisor inuence (Garg and Rasheed, 2006).
by the franchisor. However, not all possible contingencies can be anticipated and written into the contract (Cochet and Garg, 2008;
Phan et al., 1996), and as a result, franchisors often feel that franchise contracts offer insufcient means of control over franchisee
behaviors (Stanworth, 1995).
10
Furthermore, due to the interdependence between franchisor and franchisee performance,
expectations of obligations and roles can easily become distorted from those specied in the formal contract, leading to
perceptions of breaches that may not have actually occurred, characteristic of psychological contracts (Robinson, 1996;
Parhankangas and Landstrom, 2004).
When franchisees inadequately conform to operational norms, franchisors can attempt to force compliance through coercive
legal remedies. However, this approach comes with risks and may be counterproductive. Franchisors that choose to rigidly enforce
the contract to the letter, use heavy-handed behaviors to achieve franchisee alignment, or impatiently terminate franchise
contracts without efforts at reconciliation, risk damaging their reputations in the market, thereby weakening the franchise name
(Baucus et al., 1996; Hopkinson and Hogarth-Scott, 1999: 835). As a result, astute franchisors are likely to nd purely contractual
forms of franchise governance inadequate for ensuring high levels of conformity to operational standards, and ultimately come to
recognize that building trust through less forceful and more engaging management interactions yields superior levels of franchisee
trust and compliance (Stanworth, 1995). Consequently, a softer approach toward gaining complianceby cultivating relational
exchange and governance founded on trustprovides a more sensible alternative and is likely to lead to greater relationship
longevity and franchise protability.
Relational forms of governance can be dened as norms of behavior and unwritten codes of conduct which exist to safeguard
against negative conict and potentially opportunistic behavior (Cochet et al., 2008; Spinelli and Birley, 1996). These norms and
codes represent expectations of acceptable limits to behavior that are mutually shared by partners in a dyadic relationship (Heide
and John, 1992), and develop fromaspects of social embeddedness that characterize many contractual relationships (Granovetter,
1985; Macneil, 1980; Ring and Van de Ven, 1994). One critical component of relational governance is trust, which serves as a
means for reducing conict and increasing adherence to relational norms (Bradach and Eccles, 1989; Bromiley and Cummings,
1995; Zaheer et al., 1998), and enhances the exibility and adaptability of governance structures (Venkataraman, 1997). Cochet
et al. (2008) demonstrated that franchisors commonly rely upon relational governance mechanisms to shape franchisee behaviors
whenever contracts lack sufcient specicity (such as in accommodating franchisee desires for autonomy resulting from
experience).
Relational forms of governance provide further advantages where organizational size, complexity, or age impairs the
monitoring of operational behaviors. Franchisees acquire an increasing ability to operate autonomously as they learn the franchise
business in more established relationships (Tikoo, 2002). As the value of the franchisor to the franchisee deteriorates, it becomes
more difcult to sustain trust levels. As the franchise grows with increasing numbers of franchisees, the physical distance between
franchisor and average franchisor grows, with franchisors having less capacity and inclination to monitor all of their franchisees
closely to ensure conformity to formal contract. Recognizing the constant threat of conict with their franchisees, franchisors
ultimately resort to managing their relationships at a distance, by encouraging compliance through relational forms of governance
requiring trust.
Ultimately, conict that can be resolved amicably through communication that accommodates differing feelings and motives
between each party is most likely to achieve the perceived realignment of interests, values, and norms, thus strengthening trust.
These aligned values and interests among all entrepreneurs within a franchise system will subsequently result in greater brand
consistency (de Chernatony and Segal-Horn, 2003), and thus overall franchise value.
11
4. Model and hypotheses: The roles of conict, satisfaction, trust, and compliance
In this next section, we describe our conceptual model. We dene our constructs within the contexts of prior studies and
advance and explain the hypothesized interrelationships between our constructs as a model for predicting when franchisee
satisfaction, conict, trust, and compliance are likely associated with effective franchise relationships. We theorize that
satisfaction and conict directly affect trust and are indirectly causal of franchisee compliance. In our conceptualization, trust in
the franchisor is the single most important determinant of franchisee compliance, which in turn is critical for effective franchise
performance.
10
The common and problematic incidence of franchisee non-compliance would suggest that formal contracts are limited in their capacity for fully controlling
the franchise system, resulting in a common criticism of agency theory. Agency theory assumes the principal or owner of ideas (the franchisor) hires agents (or
franchisees) to perform and align to specic duties, by contract, and in return for specic rewards (Shane, 1998). Unfortunately, since not every contingency can
be anticipated, compliance cannot be assured through contracts alone. As a result, such business relationships require various forms of relational governance
requiring trust. Franchisors thus have a business interest in maintaining or bolstering their franchisee's trust in them, since such trust is conducive to
encouraging cooperative behavior (Gambetta, 1988). In short, trusted franchisors are likely to benet from voluntary franchisee compliance to franchisor policy.
11
In this regard, there are benets to trust that go beyond merely fostering compliance. The importance of franchisee's trusting beliefs in their franchisors is
also manifest through the cultivation of positive attitudes orchestrated among the franchisee units' staffs. This attitudinal benet will have valuable
repercussions on how employees interact with consumers when providing customer service (Punjaisri and Wilson, 2007), as well as through the generation of
positive word-of-mouth effects that advance the franchise brand equity among the public (see East et al., 2007 for a review of these word-of-mouth effects).
Hence, franchisee satisfaction and trust will positively impact brands in ways that help to sell new franchises, increasing overall franchise system protability.
4.1. Conceptual model
Our conceptual model of franchised relations is grounded in the outcome constructs of the StructureConductOutcome [SCO]
paradigm of marketing channels research.
12
Trustcompliance modeling investigates variables that impact the long-term success
of the franchiseefranchisor relationship. Perceptions of satisfaction and trust develop early during the relationships and guide
behavior during future interactions (Dwyer et al., 1987; Rempel et al., 1985). Commitment, as a signal of intent, develops as parties
purposefully engage resources in order to maintain the relationship (Dwyer et al., 1987), with trust found to be a major
determinant of this commitment (Morgan and Hunt, 1994). Based on the staged development of satisfaction, trust, and
commitment from Dwyer et al. (1987), and consistent with a meta-analysis by Geyskens et al. (1999: 234), our theoretical model
follows a sequential owfromsatisfaction, to trust, to compliance (See Fig. 1). Compliance is especially relevant for understanding
franchising relations and performance because entrepreneurial interests of franchisees are often likely to be thwarted, leading to
inter-organizational conict. Compliance reects integrative behavioral outcomes. Therefore, compliance will exert a more direct
impact on performance and the brand value of the franchise system.
Justice literature, as grounded in equity theory
13
may be used to explain howtrust levels are calculated by franchisees (Spinelli
and Birley, 1996). Equity theory suggests that individuals will perceive an exchange to be equitable if the degree of one's input-to-
output ratio is equal to that of their exchange partner (Adams, 1965; Walster et al., 1978). Franchisees can judge the level of justice
in the relationship according to either (a) an acceptable distribution of inputs to outputs in the relationship (distributive justice),
or (b) condence that decision-making within the relationship is consistently implemented in a manner that is fair to both parties
(procedural justice). Each of these trusting beliefs can lead to trusting behavior in which the trustor accepts a degree of
vulnerability in relying upon the trustee to deliver as promised or expected.
In sum, distributive judgments address expectations regarding the franchisor's operational and business skills (in terms of their
capacity to contribute to the value of the franchise) and aspects of the contract related to the distribution of benets to each party.
Conversely, procedural judgments address how decisions are made and implemented, and the extent to which each party's
interests are considered. The mode of judging relationship equity and justice may shift, based on changing franchisee needs over
the course of the relationship (Leventhal, 1980). Distributive justice is then used for calculating a franchisor's competence, based
on an equitable or acceptable balance of benets to sacrices for the franchisee. Procedural justice forms the basis of franchisee
calculations of franchisor integrity, and encompasses matters examining governance of entrepreneurialinvestor relations
(Sapienza and Korsgaard, 1996). Loss of integrity trust can arise from misunderstandings regarding franchisor activities, such as
when working norms lack transparency. For example, a franchisor might impose policy changes without adequate consultation
with franchisees. Loss of competence trust, on the other hand, may arise from non-delivery or under-delivery of benets pledged
by contract (such as training or promotion), owing to franchisor mismanagement.
4.2. Satisfaction
Franchisee satisfaction is dened as a positive affective state resulting when the economic and psychosocial (or non-economic)
expectations of all aspects of the working relationship with their franchisor have been met (Anderson and Narus, 1990; Geyskens
et al., 1999). Franchisee satisfaction is widely linked to the quality of franchisor support, upon which they are economically
dependent (Gassenheimer et al., 1994; Hunt and Nevin, 1974; Lusch, 1977; Lewis and Lambert, 1991; Morrison, 1996, 1998).
Franchisee satisfaction has been repeatedly related to acceptance of the control and inuence imposed by their franchisors.
Satisfaction highlights the importance of mutual agreement between franchisor and franchisee regarding contractual obligations,
goal compatibility, and perceptions of fairness as elements of franchise relationships that are critical for preserving the
relationship (Morrison, 1996; Spinelli and Birley, 1998).
Franchisors can manage franchisee satisfaction by meeting franchisee expectations. Franchisors that cultivate favorable work-
related attitudes and strong organizational attachments facilitate cooperative working relationships (Mayo et al., 1989) and can
stimulate higher performance from franchisees (Morrison, 1997). Satisfaction is also associated with loyalty and franchisees'
recommendations of franchisors to other networked businesses (Hing, 1995), enhancing the corporate reputation of the franchise.
12
Our model is further rooted in the power-dependency literature of marketing channel behavior. On rst observation, using a power-dependency framework
to explain trust might seem to be counterintuitive. Although Morgan and Hunt (1994) distinguish trust from that form of power that is employed to condition
others, trust can also be used calculativelyin a manner that is compatible with a dependency framework of relational exchange. In developing our Trust-
Compliance Model, we adopt the calculative framework of trust (Coleman, 1990), in which franchisees anticipate the level of integrity and competence that
characterizes their franchisors. Specically, in our model, franchisees are expected to comply with their franchisor wishesdespite the presence of any conict
whenever integrity and competence are manifest by the franchisor and whenever sufcient value is believed to be derived from the franchise.
13
Procedural justice theory is concerned with individuals' reactions to decisions in which they are personally invested but that they cannot directly or fully
control. This theory evolved from equity theory (Adams, 1965; Walster et al., 1978), which focuses on the fair distribution of resources in exchange relationships.
In contrast to equity theory, which emphasizes the outcome of decisions, procedural justice theory examines the impact of the process of decision-making on the
quality of exchange relationships (Lind and Tyler, 1988). The theory suggests that individuals value just procedures because they provide a means of indirect
control over a decision when direct control is not possible (Thibaut and Walker, 1975). Even when a particular decision has adverse outcomes for an individual,
just procedures ensure the individual that, over time, he or she will receive what is due from the exchange relationship. In essence, just procedures allow
individuals to feel that their interests are being protected over the long run (Lind and Tyler, 1988).
With franchisee satisfaction recognized as a harbinger of franchising performance (Elango and Fried, 1997), we consider
satisfaction to be a legitimate antecedent to compliance, offering additional insight into franchise performance.
4.3. Conict
Conict can be dened as either perceived differences on perspectives that can impede goals between parties (Gaski and Nevin,
1985) or perceived experiences describing psychological states about the relationship (Dant et al., 2006). Conicts can arise from
many areas in the relationship, including differences regarding priorities, time perspectives, and forms of earning (Garg and
Rasheed, 2006; Shane and Cable, 1997). Consequently, differences on fundamental issues or perceptions about relationships are
unlikely to be quickly resolved, leading to heated disputes, and creating destructive or dysfunctional conict. Dysfunctional,
enduring conict can increase distractions, obstruct goal alignment, reduce synergy between partners (Anderson and Narus, 1990;
Gaski, 1984), threaten the survival of the relationship (Grnhagen and Dorsch, 2003), and lead to costly litigation for both parties.
Due to the delicate balance between franchisor control and franchisee autonomy, franchise success is strongly determined by the
ability of the franchisor to manage conict arising from the balance between the parties (Fulop and Forward, 1997).
4.4. Trust
Trust can be dened as franchisee condence in accepting a calculated level of risk with the franchisor (Coleman, 1990),
allowing franchisees to cope with vulnerability in their relationships with their franchisors. This calculation of trust is based on
criteria of trustworthiness. Previous models of trust in channels research have identied competency and integrity as potential
criteria (Davies and Prince, 2005; Dickey et al., 2007; Mayer et al., 1995). The importance of franchisee trust is that it is likely to be
reciprocated by the franchisor, leading to direct salutary effects within the relationship. Mutual trust reduces the costs arising from
the distractions of close monitoring designed to prevent opportunism.
As prerequisites for franchisee trust, evidence of franchisor competence and integrity are likely to yield important clues
regarding the health of the overall franchise system and its contributory relationships. Initially, prior to rst-hand experience of
the franchisor, the brand reputation of the franchise can serve as a signal for competence. Well known and nancially successful
franchises will be assumed competent. However, once embedded within a franchise relationship, judging franchisor competence
can be problematic for franchisees, due to lack of appropriate experiential benchmarks for those with limited prior franchise
familiarity. Cues for guiding expectations of competence have been identied in other B2B relationships where objective
performance is difcult to judge (Davies, 2009). Nonetheless, franchisees may need to rely more on integrity for guiding their
expectations regarding their franchise relationships.
Expectations of appropriate behavior reective of integrity can often be interpreted and inferred from the terms specied in
franchise contracts. These expectations are then qualied over the evolving relationship through successive encounters and
interactions, where appropriate behaviors can be gauged as role obligations are fullled (Scheer and Stern, 1992) and as
constructive collaboration is demonstrated (Larzalere and Huston, 1980). In the absence of tangible outcomes that would facilitate
assessment, the identication of appropriate and expected behavior amounts to judging the processes from which business
decisions derive. Perceptions of processes have been shown to impact on the quality of exchange relationships, reecting
procedural justice theory (Lind and Tyler, 1988). Just procedures provide a means of indirect control over a decision when direct
control is not possible (Thibaut and Walker, 1975). This is because just procedures offer cues of what can be expected for further
outcomes.
Fig. 1. Conceptual model of franchisee trust with dimensions.
4.5. Compliance
We employ a behavioral denition of compliance. Compliance is an outcome of commitment, motivation, and cognitive
processes that jointly drive decisions of one party to do what the other party desires. Behaviorally, franchisee compliance simply
reects conformance to both contractual obligations and relational expectations that derive from working norms implicit in the
franchise agreement. Brill (1994) operationalizes the denition by stating that compliance can be represented as a continuum, for
which cooperation and opportunism may be viewed as polar positions on the scale.
Franchisee compliance is an important franchisor performance objective and is seen as necessary for investing in future planning
and management (Elango and Fried, 1997: 77), thereby facilitating the franchisor's entrepreneurial ambition for growth. The
franchisor seeks to achieve franchisee compliance to franchise policy through an effective control and incentive system.
Franchisees that do not comply with the recommended policies of their franchise have been shown to perform at below
average protability (Fenwick and Strombom, 1998). Through compliance, the franchisor strengthens its own legitimacy in
satisfying end user needs as expected. Franchise effectiveness is affected by the franchisor's inuence over the franchisee. Hence,
franchisors have an interest in directly or indirectly inuencing franchisee compliance with the policies of the franchise system.
Compliance has been studied from the perspectives of transaction analysis (John, 1984), social power (Hunt et al., 1987),
inuence strategies (Payan and McFarland, 2005), and lateral communications (Dickey, 2003). Our Trust and Compliance model
goes beyond these perspectives and breaks new ground by examining a complex of relational exchange variablesSatisfaction,
Conict and Trustas they causally affect franchisee compliance.
4.6. Satisfactionconict
According to relational exchange theory, franchisee satisfaction with their franchise relationship advances the potential for
franchisee cooperation with their franchisor. This is attributable, in part, to the role of satisfaction in reducing conict that could
otherwise result in deteriorating relationships and reciprocity (Lewis and Lambert, 1991; Spinelli and Birley, 1996). Coupled with
the costly consequences of litigation resulting fromthe breaching of contractual policies, franchisee satisfaction relies on perceived
franchisor adherence to relational norms and on the economic consequences of the franchisorfranchisee relationship (Martin,
1991). In franchise relations, economic satisfaction may be presumed to largely shape overall satisfaction, since the relationship
basically hinges on perceptions of equity in the distribution of resources (prots). Consistent with these notions, a meta-analysis
of channel studies (Geyskens et al., 1999) found that satisfaction (including favorable partner perceptions in the relationship) was
instrumental in lessening conict.
Hypothesis 1. Greater levels of franchisee overall satisfaction will decrease conict.
4.7. Satisfactiontrust
Selnes (1998) argues that trust is a value that represents a higher conceptual level than satisfaction, while satisfaction is an
important source of trust. The logic is that satisfactionis a manifestationof the other party's capacitytofulll relational norms, andthis
generates trust.
According to Hing (1995) franchisees derive satisfaction from their franchise relationship based, in part, upon how well their
franchisor meets their expectations. These expectations are shaped by the perceived quality of franchise exchanges over the
course of the relationship. Franchisee satisfaction has thus been positively associated with perceptions of the quality of the
franchisor's interactions, as well as the attractiveness of the rewards allocated by the franchisor and the overall perceived fairness
of the relationship (Schul et al., 1985; Morrison, 1996). According to fairness theory (Folger and Cropanzano, 1998), a party who
perceives they have been treated unfairly seeks to rst determine accountability (who is to blame) for the state or event, and then
attempts to distinguish the motives and intentions of the offending party. Overall, franchisees judge their economic and non-
economic benets of exchange based on notions of distributive justice and procedural justice, respectively.
Much of channel research has revealed that economic performance is a precondition of trust (Anderson and Narus, 1990;
Scheer and Stern, 1992). In established relationships, expectations regarding economic performance include ongoing operational
support services such as regular in-store training, assistance in marketing, accounting, staff training, and feedback on performance
(Hing, 1995). Such economic satisfaction can help build trusting beliefs in the franchisor's competence. Satisfaction fromeconomic
benets is based on notions of distributive justice and exchange equity, and leads directly to trusting beliefs in the franchisor
competence (or competence trust).
Like most strategic partners, franchisees expect fairness in both the outcomes and the processes encompassed within their
transactions and relationships. Walker (1971) found comparatively satised franchisees were more likely to perceive franchise
relations as fair than were dissatised franchisees. Satisfaction from congenial franchisor relations and treatment can reect
procedural justice that, in turn, is positively related to trust in a decision maker (Folger and Konovsky, 1989; Korsgaard et al.,
1995). In turn, procedural justice is associated with trusting beliefs in the integrity of the franchisor (or integrity trust).
Hypothesis 2. Greater levels of overall franchisee satisfaction will increase trust.
H2a. Greater levels of overall franchisee satisfaction will increase competence trust.
H2b. Greater levels of overall franchisee satisfaction will increase integrity trust.
4.8. Conict trust
Before acting cooperatively, it is necessary not only to trust the other party but also to believe that this trust is reciprocated
(Gambetta, 1988). Therefore, conict, and the manner in which it is handled, will have an important bearing on how trust is
formed. When conict is interpreted negatively as a power struggle, trust levels will be low. When discord is perceived as
functional, as an opportunity for an exchange of views and a means of understanding different perspectives on issues,
relationships will be strengthened, leading to greater franchisee trust in their franchisor's advice.
14
A meta-analysis of channel
relationships has shown that conict inuences trust negatively and directly (with =0.395) while trust was found to be
strongly negatively correlated with conict (with r =0.59) (Geyskens et al., 1999). Causes of conict that consistently suppress
trust include perceptions of goal incompatibility, domain disagreement, and unfairness (Geyskens et al., 1998). These all reect
fundamental issues upon which neither party may be willing to compromise, reective of dysfunctional conict.
To more thoroughly understand how conict leads to deteriorations in trust, we examine lack of domain consensus and goal
incompatibility that can result in perceptions of unfairness, and which can respectively relate to violations in distributive justice or
procedural justice. If conicts emerge over performance, a dialogue about roles and obligations will likely follow. When franchisors
fall short on advice, training, or supportive local advertising, that could have added value to the franchisee's enterprise, this leads
to perceptions of inequity in distributive justice and breaches of competence trust.
Control strategies employed by franchisors to constrain franchisee behavior and ambition can threaten the entrepreneurial
autonomy expected by the franchisee. Goal incompatibility may surface as franchisors attempt to enforce homogeneous corporate
rules and standards on franchisee business units that conict with their preferences for more discretion, leading to a reduction in
integrity trust held by franchisees. Sources of conict can be disagreements over levels and methods of overall control in business
practices, howproducts are sourced, priced, or sold, the appearance of the franchisee's premises, and constraints on standards and
operating manuals (Antia and Frazier, 2001; Elango and Fried, 1997). If disputes arise over policies concerning franchisees'
discretion to act autonomously, the integrity of the franchisor will be questioned, putting trust at risk. Although operational
guidelines and terms are initially agreed to by contract, later circumstances may necessitate policy shifts that require franchisee
acquiescence prior to implementation in order to avoid misalignment of values and equity reassessment by the franchisee,
subsequently jeopardizing integrity trust.
When terms are perceived to shift in favor of the franchisor, perceptions of unfairness can be perceived (Limand Frazer, 2000).
Despite interdependence among parties, perceived asymmetry in control or outcomes can incubate conict within the channel
(Lawler et al., 1988; Molm, 1989). It is thus important that franchisees perceive signicant capacity for self-determination in their
operations, substantial voice and inuence regarding their relations with franchisors, and assurance that their comparative
nancial return is equitable, since any perceived asymmetries in the distribution of economic outputs in relation to costs, time, and
effort inputs can be sources of conict (Lafontaine and Kaufmann, 1994). This conict over perceived unfairness can lead to a lack
of franchisee trust that further deteriorates relationships.
Hypothesis 3. Greater levels of conict will decrease franchisee trust in their franchisor.
H3a. Greater levels of conict will decrease competence trust.
H3b. Greater levels of conict will decrease integrity trust.
4.9. Trust compliance
Under conditions characterized by mutual trust, partner needs and expectations are more easily communicated (Schurr and
Ozanne, 1985). Further, franchisee goals within a trusting relationship are more likely to be aligned with those of the franchisor,
and thus more likely to be met, thereby increasing compliance. According to relational exchange theory, unless the goals of the
franchisor are congruent with those of the franchisee, the future relationship is under threat. Conversely, the presence of trust
reduces the negative effects of conict between partners and increases cooperation (Anderson and Narus, 1990).
Franchisee trust may initially derive from the reputational capital accumulated by the franchisor that is reassessed as
relationship experiences unfold. Low trust can lead to dysfunctional consequences, with parties less willing to make sacrices to
build the relationship (Anderson and Weitz, 1992). Therefore, when franchisees have little trust in a franchisor's
recommendations or promises, there is less compliance (Payan and McFarland, 2005).
Although compliance is a relatively neglected area of research in franchising, Dickey et al. (2007) examined trusting beliefs in
their model of relational behavior to explain compliance, arguing that trusting intentions follow from the formal contract. They
14
We assert that the likelihood of conict evolving into distrust is dependent on the perceptual shift of dependency or power at the time of the conict. In
practical terms, franchisors that provide sufcient and expected levels of support encourage trust due to their (a) legitimate inuence (or authority), (b) expert
knowledge and (c) referential esteem as sources of gentle inuence with franchisees. During the early stages of relationships, the balance of power is likely to be
in favor of the franchisor, due to their desirability as business partners (owing to their possession and control of attractive franchisor trademarks associated with
proven brand equity). The potential for dysfunctional conict will be suppressed by the knowledge-based advantage of the franchisor (Michael, 2000).
found that a franchisee's trust concerning the competence and honesty of their franchisor was strongly and positively related to
compliance.
15
In relational terms, franchisors perceived to be able and willing to serve their franchisees fairly and effectively can
expect reciprocal treatment from their franchisees, leading to high levels of compliance.
16
Therefore, franchisors that cultivate
trust through the constructive and ethical management of their franchise relationships can improve the level of franchisee
compliant behaviors (Dickey et al., 2007). Since contracts cannot specify all contingencies, however, governance by trust can
function to reduce opportunism. Geyskens et al. (1999) found compelling support for a causal relationship between trust and
commitment, a compliance-inducing concept.
Specically, in our model, when high levels of franchisor integrity and competence are evident, signicant value is anticipated
from the franchisor relationship and norms, leading to enhanced franchisee compliance with their franchisor's policies.
Hypothesis 4. Greater levels of franchisee trust will increase compliance.
H4a. Greater levels of competence trust will increase compliance.
H4b. Greater levels of integrity trust will increase compliance.
5. Methodology and results
5.1. Sample, measures, and data collection procedures
In order to test the hypotheses presented above, we selected a large, franchised automobile repair service rm as our focus.
Although this particular rmcontrols franchised retail outlets in a number of markets worldwide, we limited our analyses to those
franchisees located within the US. Although selecting a single franchised organization in a particular industry and country
(compared to multiple rms, industries, and countries) arguably limits the generalizability of our ndings, the focus on a single
rm, market, and industry improves substantially the internal validity of our ndings, which can subsequently be replicated in
other franchised organizations and industries. We deemed internal validity to be particularly important due to the theoretical
nature of the research.
Based on our literature review above and the aims of the current research, we developed an initial survey instrument to
measure four variables or constructs: trust, satisfaction, conict, and compliance (see Appendix A). The instrument was developed
to measure franchisee sentiments toward the franchisor with respect to these four constructs. Consistent with our hypotheses, the
trust scale is comprised of two separate dimensions. These dimensions measure expectations that the franchisor will engage in
behaviors appropriate to fullling their role as promised within the franchise agreement (integrity trust), and expectations that
the franchisor will perform with technical competence (competence trust). Each of these trust dimensions was measured by
three-item scales based on a study of supplier relations by Kumar et al. (1992), in conjunction with other pre-existing scales (e.g.,
Anderson and Narus, 1990; Frazier, 1983). These six items in total represent our overall trust construct.
The satisfaction construct is also based on extant literature (Kumar et al., 1992). Franchisees routinely took into consideration
franchisor performance when assessing their satisfaction with their franchisor relationships. Hence our six-item satisfaction
construct incorporates both business performance (i.e., economic satisfaction) and other general items that measure relationship
satisfaction (i.e., non-economic satisfaction). The conict construct was indicated by three items and the compliance construct by
two items, each based on the same extant measures fromKumar et al. (1992). To reect the diversity of measures of conict (Dant
et al., 2006), our conict scale includes both issue-specic measures and perceived experiences describing psychological states
about the relationship. Every item in the survey was measured by a seven-point Likert response format.
Based on an input from an association of independent dealers (franchisees) afliated with the auto repair franchise rm, the
survey was mailed to a subset of outlets. This dealer association provided 550 names and addresses of independent franchised
outlets across the US. After adjusting for incomplete and/or unusable surveys, we obtained a total of 135 surveys yielding a
response rate of approximately 25%. Previous studies utilizing franchised businesses have experienced similar rates of response
(e.g.: Parsa, 1999).
At the request of the association of franchisee dealers, we limited the number and type of background questions on the survey
instrument. At the time the data were collected, the average number of franchises owned by each independent dealer (franchisee)
was 1.57, each dealer had owned their franchise an average of 10.7 years, and the average monthly revenue per outlet was $81,520
(US).
To assess the validity of our measures, we conducted conrmatory factor analysis (CFA) with latent variables. Each construct
was indicated by the items described above and is presented in Appendix A. Since we identied the trust construct to form two
distinct dimensions, we elected to estimate separate measurement modelsone with an overall latent trust measure and two
others, each individually measuring one of the two discrete latent dimensions (integrity trust or competence trust) and each
15
As it represents a broader range of conceptualization, we substitute the construct of integrity for Dickey et al.'s (2007) notion of honesty.
16
According to Storholm and Scheuing (1994), franchisees will generally discount compliance if they feel disadvantaged or betrayed. In such circumstances,
franchisees may engage in opportunistic behavior or deliberately act in violation of the franchise agreement (Inma, 2002). However, applying French and Raven's
(1960) paradigm of sources of power to franchise relationships, we assert that franchisees are most likely to avoid compliance to their franchise agreement
whenever the franchisee feels less dependent on the franchisor. Such perceptual changes about the relationship interdependency heighten the impact of a
breakdown of franchisee trust on their non-compliance.
consisting of three items. To estimate an overall latent trust measure, we created two item parcels (composites of items used as
latent variable indicators) for each of the integrity trust and competence trust dimensions. The CFAs were carried out using the
EQS statistical program(Bentler, 1995) following the maximumlikelihood estimation (ML) method. We also ran each model with
a robust ML estimator in order to rule out potential problems associated with invalid assumptions of normality in the data.
The trust and satisfaction factors (latent variables) were both estimated using two item parcels each: the rst three items in
each scale comprised the rst parcel and the remaining three items made up the second parcel, respectively, for each factor.
Correlation analysis was used to verify that these items were appropriate in terms of comprising the item parcels. Across parcels,
the average item-to-item correlation was 0.55 and all correlations were positive and signicant (p's<0.05).
A measurement model inclusive of the four latent variables (overall trust, satisfaction, conict, and compliance) yielded the
following results:
2
(59)=132.12, p<0.00, CFI =0.94, IFI =0.94, RMSEA=0.096 (the
2
[78] for the null was 1227.7).
17
All of
the latent variable indicators (items) loaded signicantly (p's<0.001) onto their respective construct; the average magnitude of
the standardized loadings across the four factors was 0.75 which exceeds the widely accepted minimumof 0.40 (Ford et al., 1986).
Estimating this model with a robust ML estimator revealed no changes to the ndings.
A second measurement model inclusive of ve latent variables (integrity trust, competence trust, satisfaction, conict, and
compliance) yielded the following results:
2
(109)=185.3, p<0.00, CFI =0.94, IFI =0.94, RMSEA=0.072 (the
2
[136] for the
null was 1467.67). As in the previous measurement model, all of the latent variable indicators loaded signicantly (p's<0.001)
onto their respective construct. The average magnitude of the standardized loadings across the ve factors was 0.75 and
estimating the model with a robust ML estimator revealed no changes in the ndings. In Table 1 we report the correlation matrix,
coefcient alphas, and descriptive statistics for each of the constructs.
5.2. Results
In order to test the hypotheses noted earlier and depicted in Fig. 1, we estimated three separate structural equation models with
four latent variables each: an overall trust model (
2
[61] =133.12, p<0.00, CFI =0.94, IFI =0.94, RMSEA=0.094), an integrity
trust model (
2
[73]=132.1, p<0.00, CFI =0.95, IFI =0.95, RMSEA=0.078), and a competence trust model (
2
[73]=150.3,
p<0.00, CFI =0.94, IFI =0.94, RMSEA=0.089). The model estimates using the two separate trust constructs reveal a good t,
providing useful explanatory relationships between satisfaction, conict, trust and compliance. Illustrated in Fig. 2, the ndings offer
strong support for the hypotheses. With regards to H1, the results suggest that satisfaction signicantly and negatively affects conict.
In support of H2, we nd that satisfaction signicantly and positively affects overall trust, integrity trust, and competence trust. In
testing H3, conict was found to signicantly and negatively affect both overall trust and integrity trust but not signicantly affect
competence trust. Finally, pertaining to H4, we nd that each of the three trust measures has a signicant and positive effect on
compliance.
6. Discussion and implications
6.1. General discussion of results
Our ndings reveal that franchisee satisfaction and conict with the franchisor jointly determine overall franchisee trust levels.
In the model we tested, the direction of causation from trust to compliance agrees with results relating trust to a proxy variable
(commitment) froman empirically tested meta-analysis of 27 studies linking constructs to trust (Geyskens et al., 1998). Relations
found between these variables are consistent with research by Anderson and Narus (1990), Dant et al. (2006), deRuyter et al.
(2001), and Kim and Oh (2002). These relationships reveal that trust levels mitigate or intensify the effects of conict and
satisfaction on franchisee compliance.
Conict, marked by communication breakdowns, has a negative inuence on overall trust, consistent with ndings obtained
by Chiou et al. (2004). In turn, diminished trust reduces a franchisee's likelihood of compliance with the franchisor's operational
guidelines. Failures of compliance may then adversely affect overall franchise performance.
A major contribution to an improved understanding of franchise performance stems from our results, which show specically
how trust affects compliance. Governance by overall trust, which includes both trust dimensions, will reduce non-compliant
opportunistic behavior, strengthening the franchisor's brand equity and system uniformity. However, franchisee compliance to
franchisor requests is more strongly inuenced by integrity trust than by competence trust.
Most importantly, our results clearly demonstrate that conict has an asymmetrical effect upon different forms of trust. High
levels of conict may prove unpalatable by raising franchisee concerns over franchisor objectivity or integrity, thereby
contributing to mistrust and leading to non-compliance. Yet according to Phan and Peridis (2000), conict can be functional when
culturally distinct organizational partners (such as franchisees and franchisors) communicate their values and register new
learning processes for knowledge to be created. In this way, some forms and amounts of conict may be instrumental in enhancing
perceptions of competence by stimulating debate and innovation, thereby leading to the creation and sharing of new knowledge.
As a result, while conict is likely to suppress integrity trust, some conict may have a neutral or even mildly positive effect upon
17
2
=chi-square; CFI =comparative t index; IFI =incremental t index; and, RMSEA=root mean square error of approximation; please see Appendix B for
further explanation.
competency trust, suggesting that the relationship between conict and compliance is more complex than models using
unidimensional constructs of trust have previously suggested.
6.2. Implications for entrepreneurship research
Franchising is clearly a form of cooperative entrepreneurship, and franchisees conceptualize themselves as entrepreneurs
(Stanworth, 1995). They assume entrepreneurial risk, innovate, and largely operate independently within the contractually
cooperative franchising business format (Gassenheimer et al., 1996). Previous research has explored the roles of opportunism and
participative communication on franchisee satisfaction with their cooperative relationships. Although trust is an important
dimension in cooperative entrepreneurial arrangements, it has not been explored in this context from a multidimensional
perspective.
Our research demonstrates that dissatisfaction and conict within the franchise system derive, in part, from the obstruction of
franchisee aspirations for autonomy in the pursuit of entrepreneurial success. As a result, the entrepreneurial need for
achievement and autonomy that characterizes franchisees must be prudently channeled into mutually-aligned goals and
procedures or market opportunities will suffer due to distrust and non-compliance.
6.3. Relationship of theories to franchisee motivations
Despite the danger of franchisee non-compliance as a severe impediment to overall franchise operational performance, there is
a compelling need for theoretical understanding of the key factors that lead to non-compliance. While much of previous
franchising research has used the resource allocation framework to identify motives for growth (e.g., Oxenfeldt and Thompson,
1969; Caves and Murphy, 1976) and the agency framework to explain behavioral and outcome control issues within the franchise
system (e.g., Dant and Nasr, 1998; Eisenhardt, 1989; Kaufmann and Dant, 1996), neither of these research streams captures the
behavioral concerns of relational exchange such as how relationship value is inuenced by trust (Harmon and Grifths, 2008).
Fairness theory (Folger and Cropanzano, 1998) and procedural justice theory (Lind and Tyler, 1988) are related to some of these
concerns, but explicit application of these perspectives to research in the entrepreneurial area has been limited. As a result, there
has been inadequate understanding as to franchisees' motivations concerning compliance with organizational policies and
procedures, or the relational features that might inuence this behavior.
Relational contract theory builds on, and extends, relational exchange theory, which is in turn based upon social exchange
theory. Social exchange theory examines inter-organizational governance from the perspectives of interdependency and
reciprocity, and is critically dependent upon a foundation of trust (Donaldson and O'Toole, 2007; Organ et al., 2005). According to
social exchange theory, individual rewards can be maximized in relationships through cooperative behaviors that serve the best
interests of the partnership (Blau, 1964). Relational exchange recognizes that economic (legal) contracts, such as those used in
franchising, include elements of discrete exchange that can be specied, as well as other elements that cannot. Relational
contracting thus relies upon relational governance mechanisms to provide further incentives for cooperation and compliance to
desired norms (Macneil, 1980).
Contrary to Dickey et al. (2007), we demonstrate that franchisee trust in franchisor integrity signicantly and strongly inuences
franchisee compliance withcontractual andrelational norms. Again, this nding is inconsistent withthose of Dickey et al. (2007), who
suggested that Trusting belief in franchisor honesty (a concept directly congruent with our construct of integrity) did not exhibit
signicant effects upon compliance.
Since we demonstrate that integrity trust serves as a better predictor of compliance than competence trust, we offer two
potential explanations for these ndings that are based on notions of relational exchange and that might be tested through further
research.
Table 1
Measures: descriptive statistics.
Construct Mean Standard deviation 1 2 3 4 5 6
1. Trust
Overall 3.7 1.29 0.72
2. Trust
Integrity 3.3 1.31 0.78 0.54
3. Trust
Competence 4.1 1.64 0.87 0.38 0.79
4. Satisfaction 2.9 1.56 0.62 0.56 0.49 0.93
5. Conict 4.3 1.82 .64 .55 .51 .73 0.86
6. Compliance 5.0 1.31 0.37 0.33 0.30 0.40 .44 0.54
Notes: the coefcient alpha for each construct is on the diagonal and the inter-correlations among the measures are on the off-diagonals. The alphas for the
constructs are based on the individual items making up each construct (see Appendix A). All correlations are signicant (p's<0.05).
represents a correlation (as opposed to a Cronbach alpha) because the construct is measured with only two items.
6.3.1. Social exchange and limits to reciprocity
Social exchange theory attempts to explain individual goal seeking behavior within the connes of a partnership based on
interrelated interests. When individuals in these relationships perceive their partner's actions result in outcomes that are
equitable (governed by distributive justice), they feel bound by the norms of reciprocity (Blau, 1964; Organ, 1988), leading to
cooperative behaviors and compliance with relational norms (Organ, 1977). Perceptions of equity regarding outcomes are also
highly inuenced by notions of partner intentions (procedural justice), with fair procedures demonstrating the organizational
respect for the rights of individuals (Folger and Konovsky, 1989).
The resultant trust motivates individuals to reciprocate positively toward the organization (Konovsky and Pugh, 1994), leading
to cooperation. Overall, the perceived reasons underlying a decision (integrity) often become more inuential to partners than the
Fig. 2. Results for the effects of satisfaction, conict, trust on compliance. Footnote: All constructs were estimated as latent variables; NS means not signicant;
=p<0.001; =p<0.05.
actual outcome of the decision (equity and competence). As Brehm (1966) noted, when participants in a relational exchange
perceive that their behavioral freedom has been unnecessarily constrained by arbitrary procedures imposed by their partners,
partner intentions will be interpreted as selsh, leading to a suspension of the norms of reciprocity. Such interpretations can lead
to deliberate non-compliant behaviors (Organ, 1977). Thus, franchisee trust in franchisor integrity both directly determines
compliance, and may also supersede franchisee trust in franchisor competence.
6.3.2. The negativity bias in perceptions of franchisor integrity
The negativity bias refers to the tendency for individuals to attribute greater weight to negative evidence than to positive
evidence when evaluating others, especially with regard to issues of ethics and integrity (Rozin and Royzman, 2001). As a result of
this bias, only one instance of unethical behavior is generally sufcient to disconrman individual's reputation for integrity, while
multiple demonstrations of other forms of behavior (ineptitude, for example) would normally be necessary to disconrm
associated aspects of one's reputation (such as competence). Franchisee impressions of franchisors (and their corollary impacts on
trust) very likely suffer from this negativity bias.
In the context of relational exchange partnerships such as franchising, these social cognition tendencies suggest that
franchisees likely place more importance overall on perceptions of franchisor integrity than on competence when forming
intentions to comply. Most importantly, this negativity bias explains why conict within the franchise relationship is highly likely
to damage franchisee trust in the integrity of the franchisor, while having less effect on perceptions of competence.
This negativity bias in franchising is reinforced by a tendency to avoid losses when making judgments involving risk
(Kahneman and Tversky, 1979) that may be applied to the relative risks associated with integrity trust and competence trust. Since
experienced franchisees' hold a strong sense of self-efcacy, they might attribute their success to their own entrepreneurial
competence, such that they eventually seek only external resources from their franchisor (such as advertising support), rather
than managerial expertise. Consequently franchisor incompetence may not affect their interests because they can turn to other
resources of expertise. However, when a franchisor displays a lack of integrity, the perceived risks to the franchisee appear much
greater, since the franchisee can no longer rely on their franchisor's promises, jeopardizing the entire relationship. Hence, the
downside risk in relying on beliefs about franchisor integrity (integrity trust) is greater than the upside risk when reliance is based
on beliefs of competence (competence trust).
Related to this negativity bias is the perceived relative ease in making judgments regarding franchisor integrity versus
competence. Since competence trust is derived from efforts that can only gradually transpire into tangible results, perceptions of
competence rely upon the assessments made over successive relational encounters. Additionally, judging competence can be more
difcult due to lack of appropriate experiential benchmarks for competence.
18
Conversely, a lack of integrity may be inferred from
consequences of the working relationship manifest in a single encounter. As a result, franchisees (especially those with limited
experience in franchising) may nd it necessary to rely more on integrity trust for guiding their expectations over much of their
franchise relationships. This would suggest that integrity may become the main criterion for judging franchisor performance,
explaining the differences in compliance we found.
6.4. Repairing relationships
Research consistently implicates trust and perceived trustworthiness as cognitive factors that are negatively impacted in
damaged relationships (Robinson, 1996; Sitkin and Roth, 1993). Specically, as a result of perceived transgressions, positive
expectations are gradually replaced by negative expectations, and eventually individuals become unwilling to expose themselves
to further vulnerability (Lewicki et al., 1998). Trust is important for the future viability of the relationship because it serves as a
lens for interpreting another party's behavior, as well as a basis for making decisions about whether and howto interact with that
party (Dirks and Ferrin, 2001). As McEvily et al. (2003) have observed, trust operates as an organizing principle for managing
relationships both within and across organizations.
6.5. Recommendations to franchisors
Non-compliance can create a number of hazards to long-term franchise protability. These include lost time and nancial
resources, damaged reputations, and the potentially jeopardized compliance of other franchisees. Conversely, compliance can be
understood as a signal that franchisees are generally content with their franchise relationship, indicating a sign of franchise health.
Since trust works both ways in relationships (Gambetta, 1988), franchisee compliance may encourage reciprocity designed to
maintain their franchisors' trust and discourage their close supervision and over-governance. In general, our research suggests that
increased levels of franchisee trust in their franchisor can improve overall levels of franchisee compliance. Within the context of
social exchange theory, franchisors can work to improve franchisee trust from two perspectives: distributive justice and
procedural justice.
18
Further, as franchisors expand the scope of their operations and become geographically more distant from their franchisee territories, service encounters
between franchisee and franchisor may become more costly, impersonal and less frequent, making judging competence fromrst-hand experience more difcult
and elusive.
6.5.1. Demonstrating distributive justice
Competence trust in the franchisor is related to franchisee perceptions of equity in the relationship. Franchisors can increase
franchisee's assessments of equity by consistent demonstrations of distributive justice in the allocation of resources. Graen and
Uhl-bien (1995) suggest that leaders can improve compliance to organizational norms by increasing the allocated resources
beyond what are minimally (contractually) necessary. Strict adherence by the franchisor to the minimum standards of the work
agreement (the franchise contract)in terms of the resources made available and the discretion permittedis likely to elicit the
minimumeffort and level of compliance fromthe franchisees. By increasing the available resources in the relationship beyond the
level strictly required by the contract (and thus improving the balance of equity in favor of the franchisees), or by enlarging the
acceptable scope of entrepreneurial discretion, the franchisor can redene the relationship away from economic (contractual)
exchange and toward social (relational) exchange (Organ et al., 2005). According to the norms of reciprocity, this redened
relationship, based on social exchange, will compel the franchisee to not only comply with the contractual terms of the franchise
policy, but also to fulll relational norms at a superior level of performance.
6.5.2. Demonstrating procedural justice
If and when franchisees exhibit deteriorations in compliance, our model points directly to causes within the state of the
relationship, specically suggesting that integrity-based trust needs rehabilitation. Excessive conict is likely to lead to unpleasant
and dysfunctional working relationships, jeopardizing integrity trust (and therefore compliance). Working toward the goal of
improving compliance within the franchise system, franchisors can take several paths to minimizing dysfunctional conict and
cultivating sufcient integrity trust among their franchisees. These include: (a) careful maintenance of the franchisor's image of
strict adherence to ethical practices, (b) development of strong personal relationships, which makes parties feel more condent
and comfortable with each other, (c) open sharing of business information and practices, and (d) cultivation of informal third
party endorsements, such as from other franchisees (Nguyen and Rose, 2008).
If proactive franchisors wish to generate trust and compliance with operational guidelines, they must assiduously manage
franchisee satisfaction and avoid dysfunctional conict in their ongoing relationships. This entails providing recognition and
rewards not only for high levels of compliance, but also for successful self-directed initiatives taken by the franchisee, even if these
may supersede standard operating procedures. However, constructive or functional conict should be managed and implemented
in concert with trust-building efforts in order to exploit mutual opportunities for franchise partners within their relationships.
Franchisors can further reinforce integrity trust by employing consistency in decision-making (associated with procedural
justice), since the franchisor is then signaling objectivity and impartiality. High quality working relationships, indicative of
integrity trust, should reect a participative franchisor style of relationship management that increases transparency, revealing
the justication for howfranchisor decisions are made, that strengthens compliance to the franchisor wishes. Franchisors may also
benet from screening franchisees more selectively with regard to their t within the franchise's unique organizational culture.
Finally, procedural justice is critically dependent upon methods of governance. In this regard, franchisor should consider
enlarging the participatory roles that franchisees can ll in systemgovernance. It has long been recognized that individuals are far
more likely to comply with externally imposed policies when they feel they have played a role in creating these rules (Boje and
Winsor, 1993). Thus, empowering franchisees to participate in franchise innovation and governance should expand the relative
inuence of relational norms and signicantly improve compliance. The utility of these bottom up contributions is thus not
conned to advancing innovation and efciency, but also extends to improving levels of compliance to overall policiesincluding
those top down norms which franchisees played no role in developing.
Further, any franchisee innovations adopted for the franchise system are likely to be attributed to the franchisor by virtue of
exploiting the tacit knowledge derived from their central position in the franchise network. In turn, this can strengthen the brand
equity of the franchise, increase perceptions of franchisor competence, and redress the balance of power by strengthening the
dependency of franchisees on their franchisor.
6.5.3. Franchisee entrepreneurial aspirations
Franchisee non-compliance might also be indicative of franchisor complacency as manifest by failures to identify and meet
rising franchisee expectations as they gain experience. These failures can lead to declines in competence trust, but may be restored
through efforts to meet franchisee ambitionsproviding this does not upset the core identity of the franchise. Strutton et al.
(1995) suggest that expanding franchisee recognition is a necessary strategy to address the evolving growth aspirations and
fairness concerns that represent the central tenets of a healthy franchise relationship. When the franchisor needs to rehabilitate
perceptions of equity and fairness to solidify competence and integrity trust, the balance can be restored in a number of ways.
Franchisees are closer to their consumers, and as a result they are likely to better perceive and understand the unique features
of local market conditions (such as tastes, attitudes, values, and behaviors) than their franchisors, encouraging them to seek
innovative means for local adaptation (Kaufmann and Eroglu, 1999). From an entrepreneurial perspective, it may be argued that
this local market knowledge of franchisees should earn themadditional discretion in developing strategic and operational policies
for serving their particular customers, as well as for furthering system-wide innovations.
19
19
According to Stanworth et al. (1996) the benets to franchisors of encouraging innovative behavior derives from expansion in the volume of contact points
between franchisees and customers as sources of ideas. In network terms, the franchisor can exploit its ties with their franchisees as sources of accessing external
knowledge (Powell et al., 1996). The benets from these participatory arrangements include improved precision in determining successful innovations or ideas
based on benchmarking others' efforts, and the ability to activate network members toward joint problem solving (Freeman, 1982; Uzzi, 1997).
Franchisors that acknowledge this wider potential strategic contribution of their franchisees can exploit social capital by
empowering their franchisees to share ideas, thus liberating entrepreneurial abilities and potentially improving overall
protability. Acknowledging franchise growth as an effective indicator of business health (Hoy et al., 2000), such empowerment
should lead to additional expansion opportunities for franchisors.
20
For example, franchisees may be granted master or area franchises that enable themto develop multiple outlets in an exclusive
territory that may satisfy joint growth needs of franchise partners (Kaufmann and Kim, 1995). Master franchisees are more likely
than single unit-franchisees to endorse and comply with prescribed procedures. This is because master franchisees can more easily
realize how operational discipline and conformity advance franchising success, reecting their time spent on planning and
coordination issues that increasingly matches that of their franchisors. These growth opportunities, when appropriately
addressed, can solidify dependence on the franchisor and reduce franchisee demands for autonomy (Dant and Gundlach, 1998).
6.6. Recommendations to franchisees
Over-trust refers to a tendency to trust another more than is warranted froman objective assessment of the situation. Goel and
Karri (2006) argue that entrepreneurs have a tendency to conceptually discount their perceived risks of over-trust, thereby
increasing the likelihood they will engage in over-trust. The tendency for entrepreneurs to over-trust can be explained, in part, by
their heightened levels of self-efcacy (Goel and Karri, 2006). Self-efcacy is an elevated belief in ones capabilities, in which risk is
interpreted as opportunities that can be controlled under their competence (March and Shapira, 1992).
As revealed by our model, franchisees may be susceptible to over-trust in either a franchisor's competence or integrity. In
comparison to over-trust in a franchisor's competence, the probability that a franchisee will over-trust regarding a franchisor's
integrity is likely reduced due to the negativity bias noted earlier. Yet the hazards associated with over-trust in a partner's integrity
are comparatively much greater. As a result, franchisees need to ensure they do not over-trust their franchisors based on
assumptions of integrity, as this may lead to lasting and potentially irreparable harm. Further, franchisees should be wary of
agreeing blindly to the strategic ambitions of their franchisors that may extend beyond their expertise (competence), since the risk
associated with such strategies defaulting may fall disproportionately on franchisees.
7. Limitations and Future Research
Little is known about longitudinal aspects of changes in social capital within entrepreneurial networks. In the present study,
social capital may be viewed as a means by which an organization acquires legitimacy, favorable reputation, and other benets in
the marketplace through its ties to other organizations (Pollock et al., 2002). Future research that builds on the present
investigation should explore changes in cooperative relations as consequences of dynamics of social capital. Such research should
be designed to explore the depreciation or appreciation of social capital in franchises over timeits causes and consequences.
There is a further need for a longitudinal approach that would identify turning points or critical events in the evolution of
relationships. Longitudinal approaches could reveal with greater subtlety how factors inuencing relational changes impact
compliance. Included in this approach might be an investigation over different lengths of franchise tenure in order to better
understand how the duration of a franchise affects dependency and compliance. Future research might also involve introducing
additional variables into the model that may affect shifts in relational exchange, such as levels of opportunism, participative
communication, investment, or methods of handling conict.
Finally, one might investigate how integrity can prevail over time. For example, consistent work processes were found to be an
important discriminator of tolerance, a similar concept to trust, applied to advertising services (Davies and Palihawadana, 2006).
As franchises expand their operations, relationships can become more distant and information between partners more blurred,
consistent work processes can be interpreted as a lter for judging procedural justice and as a useful surrogate of integrity.
Advertising is a useful comparison to entrepreneurial franchising because both require incremental leaps of creativity or
innovation for organizational survival.
8. Conclusion
Our study represents advances in entrepreneurial knowledge. Specically, it sheds light on the particular causes of hazards to
entrepreneurial cooperation. These hazards to entrepreneurial cooperation need to be thoroughly understood, since they diminish
the strategic leverage by which these organizational arrangements can overcome impediments to exploiting market
opportunities.
Our research demonstrates conceptually (through relational exchange theory) and empirically (through our model and
measures), why and howcooperative relationships based on trust (or more broadly, social capital) are indispensable for successful
20
McDonald's has long been recognized as the gold standard of franchise success. The relative importance of franchisee buy in, reecting franchisor/
franchisee interdependency, can be illustrated by the V.P. of HR for McDonald's North America: Central to understanding McDonald's culture is to remember
that approximately 85% of the restaurants are owned by franchisees in the United States. These are ercely competitive entrepreneurs, many of them small
business people, who want to do right by their customers. Yet many have very different ideas about what this entails, and changes just cannot move through the
company without their support. Life would be simpler if you could operate a company of this scale in a command-and-control way, which is impossible. The
owner-operators, as the franchisees are called, will rebel. Moreover, owner-operators invented many of the biggest successes in company history, like the Big
Mac and Egg McMufn (Gubman and Russell, 2006).
entrepreneurshipa key research area identied by Venkataraman (1997). Specically, we examine why and how franchisors can
discover and exploit opportunities for cultivating and sustaining both integrity trust and competence trust to ensure franchisee
compliancea critical driver of cooperative relations associated with successful franchises. Importantly, we have shown howtrust
is comprised of the distinct dimensions of both integrity and competence that differentially impact on conict and compliance. This
serendipitous nding was overlooked in previous research (cf. Dickey et al., 2007).
Part of the requisite process for building trust is in orchestrating appropriate perceptions of equity and fairness based on how
decisions are made, and how each party shares risk within the franchise. This task reects a need to balance autonomy from the
franchisee perspective with control from the franchisor vantage. Ideally, franchisors should be proactive in managing trust to
ensure smooth running of the franchise. By entrusting in a franchisor, the franchisee accepts the perceived hazard of committing to
their franchisors' requests, effectively shifting much of the actual risk from the franchisor to their franchisee.
Our model suggests that without mutual trust, much franchisor time will be directed into managing dissatised franchisees,
and in reconciling dysfunctional conict that can distract from building the strategic side of the business. When conict is
dysfunctional, it is unlikely the franchisees will commit fully and cooperatively to the spirit and intentions of the franchise
contract, squandering valuable social capital for both franchisor and franchisees. In short, the ability to overcome opportunism,
reected in discouraging non-compliance, is a major challenge for successful entrepreneurs within franchise systems.
Whereas many studies have examined various aspects of franchising fromthe perspective of franchisors, minimal research has
been conducted into these relationships from the franchisee perspective (Hing, 1995; Grnhagen and Mittelstaedt, 2000). In an
effort to address this shortcoming, this paper explored the pivotal importance of franchisee trust within franchise relationships.
We specically examined franchisors' needs to cultivate and sustain sufcient levels of trust with their franchisees in order to
avoid franchisee non-compliance with system policies and norms a common problem which leads to diminished performance
on the part of both individual franchisees, and across the overall franchise system.
Our study revealed that franchisee's trust in the integrity of the franchisor is signicantly damaged by relational conict, and
this formof trust is a necessary prerequisite for franchisee compliance with organizational norms. Conversely, franchisee's trust in
the competence of the franchisor is not signicantly inuenced by relational conict, and this form of trust has a less substantial
inuence on compliance. Overall, we suggest that franchisors, which are generally eager to improve conformity with operational
guidelines, would greatly benet from a richer understanding of the role that multiple forms of trust play as preconditions to
franchisee compliance, and should endeavor to develop relational forms of governance in order to augment contractual norms and
encourage reciprocal behaviors.
Acknowledgment
The authors would like to thank Elissa Beth Grossman and two anonymous reviewers for their extensive help in rening this
manuscript.
All authors contributed equally to this paper.
Appendix A. Measurement items
Satisfaction
1. My relationship with the franchisor has been an unhappy one. [Strongly disagreeStrongly agree]
2. Generally I am very satised with my overall relationship with the franchisor. [Strongly disagreeStrongly agree]
3. I am very pleased with my working relationship with the franchisor. [Strongly disagreeStrongly agree]
4. My association with the franchisor has been a highly successful one. [Strongly disagreeStrongly agree]
5. If I had to give the franchisor a performance appraisal for the past year, it would be [PoorOutstanding].
6. Taking different factors into account, the franchisor's performance has been [BadExcellent].
Conict [Strongly disagreeStrongly agree]
1. My relationship with the franchisor can be best described as tense.
2. The franchisor and I have signicant disagreements in our working relationship.
3. The franchisor and I frequently clash on issues relating to how I should conduct my business.
Trust [Strongly disagreeStrongly agree]
Franchisor process integrity
1. The franchisor almost always conforms to your accepted procedures.
2. The franchisor has frequently violated stipulations/terms and conditions contained in her/his contract/agreement with you.
3. The franchisor accurately les any report(s) that you supply.
Franchisor competence
4. The franchisor has the required business skills necessary to run a successful mufer business.
5. The franchisor demonstrates a great deal of knowledge about the features and attributes of Company X's products and services.
6. The franchisor and her/his personnel have poor knowledge of competitors' products and services.
Compliance [Strongly disagreeStrongly agree]
1. I follow most suggestions that the franchisor makes.
2. I generally try to accommodate the franchisor's requests.
Appendix B. Statistical detail
21
2
the model chi-square tests the null hypothesis of no difference between the proposed model and the current data structure;
technically speaking, good tting models should retain the null hypothesis and the chi-square statistic should not be signicant;
the chi-square test is very conservative (prone to Type II error), however, and researchers routinely discount a negative model chi-
square nding if other model t measures support the model.
CFI, IFI, and RMSEA the comparative t index, incremental t index, and root mean square error of approximation together
represent examples of other such t measure; each of these indexes is considered a relative t index; the CFI estimates the relative
reduction in lack of t of a proposed model versus a null model (no relations among variables) and varies from 0 to 1 with higher
values indicating better t; CFI values of greater than 0.90 are generally considered to indicate acceptable levels of model t; IFI
and RMSEA are very similar in that they too evaluate the null hypothesis that a proposed model ts the data exactly; unlike the CFI
and IFI, however, the RMSEA indicates better t with lower values; acceptable ranges for the RMSEA vary fromapproximately 0.05
to 0.10.
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