Type of Submission

Refereed Article


This study is a test of the capital market, agency, and brand name capital explanations for the existence of sub- franchising in the restaurant industry. Proxies for measuring a franchisor S use of the capital markets, agency costs, and brand name capital are developed and described. Logit analysis is employed to examine the relationship between these factors and the use of sub- franchising. The results support the use of sub-franchising when the costs of monitoring franchisees are high and when franchisors wish to overcome weak brand name capital.