Rethinking Franchise Contracts: The Impact of Transactional and Relational Governance Mechanisms on Franchisor Performance

This research explores how contract design influences growth in franchise systems. Franchising is a vital part of our economy, where a business grants others the right to operate under its brand. This study focuses on two key aspects within franchise contracts: 'contingency adaptability' which prepares for unforeseen changes, and 'franchisees' roles and responsibilities' which outline their duties. Additionally, it examines how relational aspects like information sharing and flexibility within contracts affect franchise growth. By analysing over 200,000 clauses from 332 franchisor contracts using advanced machine learning techniques, the research uncovers how different contract elements can either help or hinder the expansion of a franchise. This offers valuable insights for better contract design in franchising.