A model of trust and compliance in franchise relationships Mark A.P. Davies a,1 , Walfried Lassar b,2 , Chris Manolis c,3 , Melvin Prince d, ⁎, Robert D. Winsor e,4 a School of Management and Languages, Heriot-Watt University, Riccarton, Edinburgh, Midlothian, Scotland EH14 4AS, United Kingdom b Marketing Department, College of Business, Florida International University, 11200 SW 8th Street, RB307C; Miami, FL 33199, USA c Department of Marketing, Williams College of Business, Xavier University, 3800 Victory Parkway, Cincinnati, OH 45207-3214, USA d Marketing Department, School of Business, Southern Connecticut State University, 501 Crescent Street; New Haven, CT 06515, USA e College of Business Administration, Loyola Marymount University, One LMU Drive, Los Angeles CA 90045, USA article info abstract Article history: Received 27 September 2008 Received in revised form 22 August 2009 Accepted 23 September 2009 Available online 23 October 2009 Despite the danger of franchisee non-compliance as a severe impediment to overall franchise operation and performance, there is currently minimal understanding of the key factors that lead to these behaviors. Using a foundation of relational exchange theory, we construct and test a model that demonstrates how two distinct forms of trust, based upon perceptions of franchisor integrity and franchisor competence, are critical to explaining the roles that relational conflict and satisfaction play in influencing franchisee compliance. Implications of these findings are then demonstrated to have compelling relevance to the effective management of franchise systems. © 2009 Elsevier Inc. All rights reserved. Keywords: Franchising Trust Satisfaction Conflict Compliance Reciprocity 1. Executive summary Business format franchise organizations recognize that the success of their system is directly influenced by their ability to design and enforce rigid operational standards across their network of retail units. Yet franchise networks can be characterized as a community of entrepreneurs, each of which has aspirations toward autonomy and innovativeness. As a consequence, a significant challenge for franchisors concerns their ability to enhance franchisee compliance with these standards without thwarting franchisee ambition. While dysfunctional relationship conflict has long been understood to adversely affect franchisee compliance (Grünhagen and Dorsch, 2003), the mechanisms by which this occurs are not well understood. Although trust has been advanced as playing a critical role in facilitating relational exchange and reducing the harm that conflict exerts on compliance, limited attention has been given to the specific role that trust and its various dimensions play in franchisee compliance. Using a theoretical foundation of relational exchange to explain the critical role that trust plays in enhancing franchisee compliance, the authors advance a series of multidimensional models which clarify the interrelated roles of satisfaction, conflict, and trust as they relate to levels of compliance. These models are then assessed empirically by comprehensively surveying 135 franchise entrepreneurs belonging to a single automobile service franchise system. Confirmatory factor analysis is used for validation of our measures, and structural equation modeling is used to test our hypotheses. Journal of Business Venturing 26 (2011) 321–340 ⁎ Corresponding author. Tel.: +1 203 327 2097; fax: +1 203 353 4300. E-mail addresses: m.a.p.davies@hw.ac.uk (M.A.P. Davies), lassarw@fiu.edu (W. Lassar), manolis@xavier.edu (C. Manolis), melvinprince@sbcglobal.net (M. Prince), rwinsor@lmu.edu (R.D. Winsor). 1 Tel.: +44 131 451 8266. 2 Tel.: +1 305 340 2571; fax: +1 305 348 3792. 3 Tel.: +1 513 745 2046; fax: +1 513 745 3692. 4 Tel./fax: +1 310 338 7413. 0883-9026/$ – see front matter © 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusvent.2009.09.005 Contents lists available at ScienceDirect Journal of Business Venturing