The Effect of Ex-Ante Governance of Franchisor on Trust and Two Different Franchisee’s Behaviors

Purpose: First, In the process of franchise contract between franchise and franchisee, it is to confirm ex-ante governance affects the trust of franchisee in the franchisor, and to confirm how trust in franchisee’s franchisee affects the behavior of franchisee, that is, the boundary spanning behavior and opportunistic behavior. Second, the importance of ex-ante governance of franchisor was not highlighted due to lack of research on the control mechanism and boundary spanning behavior of franchisor in previous studies, but this study aims to examine the importance of information disclosure or franchise agreement that franchisor can control franchisees by studying the influence of ex-ante governance of franchisor on trust and boundary spanning behavior of franchisees. Research design, data, and methodology: The collected method was conducted by surveying franchise franchisees in wholesale and retail businesses in Daegu area, and 206 copies were collected. The hypothesis was verified by using structural equation modeling technique. Reliability test and confirmatory factor analysis were conducted to verify validity and reliability of the study. Results: First, the completeness and incentive of the contract had a positive effect on the trust of the franchisee, and both hypothesis 1 and hypothesis 2 were supported. Second, safeguarding clauses was set to have a positive effect on the trust of the franchisee‘s franchisee, but it was not statistically significant. Third, contractual one-sidness had a negative effect on the trust of the franchisee, so Hypothesis 4 was supported. Fourth, Hypothesis 5 and Hypothesis 6 showed positive effect on the franchisee’s transcendence behavior and negative effect on the opportunistic behavior. Implications: This study investigates the effect of the franchisor ex-ante governance mechanism on the franchise’s trust in the franchisor and accordingly conducts an empirical analysis on the effects of franchisor’s boundary spanning behavior and opportunistic behavior.