Risk sources and the effectiveness of the control system in the franchisor's risk perception management

Abstract

Franchisor's risk perceptions influence their decisions about the development and continuity of their relationships with franchisees. Although control systems are essential for risk perception management, the effectiveness of diverse types of control remains unclear. The present study incorporates specific sources of risk from the franchisor-franchisee relationship to explain control effectiveness in risk perception management. We propose that the interaction between risk sources and distinct types of control explains a franchisor's risk perception. Using data from 240 survey respondents from franchisors in Spain, this study employs structural equation modelling to analyse the effectiveness of behaviour, outcome, and social controls in the management of franchisor's relational and performance risk perceptions arising from specific risk sources. The results confirm the proposed interaction influence on the franchisor's risk perception and reveal that greater control does not always decrease risk perception, but depends on the degree of the risk sources faced by the franchisor as well as the kind of risk perceived.