Organizational Growth and Competitive Strategy: Three Essays on the Role of Entrepreneurial Effort in the Context of Franchise Chains

Abstract

This dissertation examines how firms grow, compete, and maintain quality standards, using the setting of franchise chains to test the hypotheses. Franchising is a form of organization that combines centralized control with decentralized entrepreneurship and is responsible for a representative share of the economy and employment in the United States. The three essays of this dissertation investigate how entrepreneurial efforts and competition shape growth dynamics, and the consistency of outcomes across large and complex organizations.The first essay (Chapter 2) examines firm growth in franchise chains through the lens of the Law of Proportionate Effect (Gibrat’s Law), which posits that firm growth is independent of prior size. While prior empirical work has largely focused on manufacturing firms, franchise systems offer distinct mechanisms for expansion through franchised and franchisor-owned units. Using a longitudinal dataset of 1,300 franchise chains over a 40-year period, the analyses show that franchising produces growth dynamics that differ from organic expansion, generating cumulative advantages for chains. The findings highlight how organizational form shapes growth processes and their implications for managerial decisions. The second essay (Chapter 3) investigates how entrepreneurial incentives influence quality outcomes within franchise systems. Whereas prior literature has largely emphasized agency theory explanations, this study argues that competition alters the incentives of entrepreneurs (franchisees) relative to franchisor-employed managers. Using unit-level data from large fast-food chains in the United States, the results show that franchised units achieve higher customer satisfaction ratings than franchisor-owned units. Furthermore, it distinguishes between multi-unit and single-unit franchisees to explore their different responses to competitive pressures. The findings suggest that competition and ownership structure jointly shape quality outcomes, and that competition can act as a mechanism to limit free-riding behavior. The third essay (Chapter 4) examines how quality outcomes vary across different organizational levels within franchise chains. Employing a hierarchical linear modeling approach, the analyses decompose variation in quality across units, multi-unit franchisee groups, and franchisors. The results indicate that most variability occurs at the franchisor level, followed by the unit level, with multi-unit group differences accounting for a smaller share. Additional analyses show that factors such as chain size, ownership structure, training, and competition help explain variation in quality outcomes. These findings identify where managerial interventions, and scholarly attention, may be most effective in improving and explaining organizational uniformity. Together, these essays contribute to research in franchising, entrepreneurship, and strategic management by demonstrating how entrepreneurial behaviors and incentives impact firm growth and performance. By highlighting the interplay between organizational form, entrepreneurial behavior, and competition, this dissertation provides new insights into how decentralized organizational structures shape firm outcomes.