Franchising and top management team (TMT) decisions in the US restaurant industry

The purpose of this study was to investigate how upper theory accounts for risk-averse strategic decisions. This study chose top management team (TMT) as a proxy for upper echelon. The main attributes of TMT in this research were age, tenure, education, equity ownership, and stock options. The study selected franchising as a representation of a risk-averse strategy, based on the arguments of the resource scarcity theory, agency theory, and risk-sharing theory, and it examined the moderating effect of internationalization between the attributes of the TMT and franchising decisions. Since restaurant industry has the largest contribution of franchising revenues to the US economy more than any other industry, it was chosen as the context of this research. The sample was derived from the Execucomp, Compustat, Annual 10-K database, and other publicly accessible resources (e.g., Linkedin and Business Week). The study period was 2000--2013 and 29 restaurant companies were used for data collection. The panel feasible generalized square (FGLS) was used to analyze the data in order to minimize the biases of heteroskedasticity and autocorrelation that could occur due to the use of panel data. The results of this study suggest that age, education, and share ownership were influential attributes to explain overall franchising decision of TMTs. In addition, this study found that there was a significant moderating effect between the attributes of the upper echelon theory (e.g., tenure, education, and share ownership) and the degree of internationalization to explain franchising decisions. This study provided a more comprehensive understanding of the decision making process of franchising in the US restaurant industry based on the upper echelon theory framework.