Hybrid organizational forms are increasing in importance in the global economy. More and more firms are replacing traditional hierarchical structures with inter-organizational networks, licensing arrangements, subcontracting agreements, and franchise systems as ways to serve their markets (Quinn and Paquette, 1990; Powell, 1990). This increased reliance of firms on hybrid organizational forms has raised an important research question: Why do some new hybrid organizational arrangements survive and others die?

Recent research suggests that the survival of hybrid organizational forms over time is a function of the ability of firms to economize on agency costs (Shane, forthcoming). Firms adopt organizational forms that allow them to produce and deliver products to customers efficiently (Brickley and Dark, 1987). Once a firm has selected a particular organizational form, it structures its operations to minimize the agency costs associated with that organizational form (Fama and Jensen, 1983). The environment then selects for survival those operations which are best structured to minimize agency costs (Hill and Jones, 1992).

The purpose of this paper is to test the agency explanation for the survival of hybrid organizational forms. In particular, it examines a sample of 157 firms that established business format franchise systems in the United States between 1981 and 1983. The paper proceeds in the following manner: The second section presents the agency theory explanation for the survival of hybrid organizational forms and develops specific hypotheses for identifying the new franchisers which are most likely to survive. The third section of the article describes the methodology used to test this explanation. The fourth section describes the results of this analysis. The fifth section draws conclusions and implications from this study.

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Last Updated 4/24/97 by Jo Ann Mathieu

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