Purpose
Borrowing from arguments of agency theory, the present study aims to investigate the moderating effect of the deviation from optimal franchising on the relationship between corporate governance provisions and firm financial performance.
Design/methodology/approach
The sample consists of 35 publicly listed US restaurant firms for the 1990-2008 period. The study uses a hierarchical regression with cross-sectional time-series fixed effects.
Findings
The results show that the deviation from optimal franchising worsens the negative relationship between corporate governance provisions and firm performance.
Research limitations/implications
The availability of governance data restricts our sample to large publicly listed firms in the US restaurant industry, limiting the ability to generalize results for small and privately held restaurant firms.
Practical implications
Firm executives should not only pay attention to which corporate governance provisions they adopt but also strive to maintain an optimal level of franchising.
Originality/value
The key contribution of this study to governance literature is that this study demonstrates how the presence of multiple governance mechanisms influences firm performance.
