Franchise Ownership Types and Noneconomic Performance among Quick Service Restaurants: Do Family Operated Franchises Receive Fewer Health Code Violations?

Using an agency theory perspective combined with arguments related to the importance of socioemotional wealth (SEW), we evaluate the distinctions among family-, lone-founder-, and corporate-owned and operated restaurants regarding their impact on relevant noneconomic goals in the franchising context (i.e., health code violations). Because of agency issues and family-centric long-term motivations (e.g., desires to enrich members of the family and maintain family ownership across generations), we predict family franchises will place a greater emphasis on noneconomic outcomes and should outperform both lone-founder and corporate restaurants (i.e., receive less health-code violations). Relatedly, we also predict lone-founder franchises will receive fewer violations than corporate outlets due to their enhanced identification with the franchise. We test our hypotheses with a sample of three large fast-food chains in the Southeastern United States. Surprisingly, our results indicate that family-owned restaurants perform worse on noneconomic outcomes than both lone-founder- and corporate-owned restaurants. We discuss the implications of these findings to offer contributions to family business research and franchise practitioners alike. We examine how family-owned, lone-founder-owned, and corporate-owned restaurant outlets differ in their achievement of noneconomic goals, as measured by health code violations. Based on an analysis of the quick-service restaurant industry, results suggest that family-owned and family-operated restaurants report more health code violations than corporate- and lone-founder-operated restaurants. Subsequently, there were no statistically significant differences in health code violations between lone-founder- and corporate-owned restaurants. Our research offers insights into the monitoring effectiveness of different governance types regarding noneconomic performance, a salient outcome for franchise systems.