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The Effects of Resource Scarcities and Agency Costs On the Choice of Organizational Form in the Us Restaurant Industry

University of Mississippi

David J. Ketchen, JR

Louisiana State University

Cooperative organizational forms such as franchising and joint venturing have long been popularamong hospitality chains. However, not all chains use cooperative organizational forms and those that do varygreatlyin theirproclivityto use them. One possible explanation for this variation is that when a chain confronts critical resource scarcities, its managers will use cooperative organization in order to build upon the resources of their partners. However a second approach, agency theory, suggests that chain managers use cooperative organization to minimize the costs of monitor ing outlet managers. Using data on 94 restaurant chains, hypotheses are tested that investigate the independent and joint efficacy of these explanations. Results show that capital and brand name are important resources affecting the choice of organizational form whereas geographic dispersion, task programmability, and asset specificity are key agency variables. Overall, perhaps the key finding is that the ability of agency theory to explain organizational form is diminished among resource scarce chains. The results, therefore, suggest that both perspectives are needed to fully explain the choice of organizational form.

Key Words: Key words: hospitality management, resource scarcity • agency theory • organizational form.

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