Organization governance form in franchising: Efficient contracting or organizational momentum?

We examine firms' choice of organizational governance form. Using longitudinal data on a sample of business format franchisors operating in North America, we show that the cross-sectional evidence commonly used to demonstrate support for efficient contracting explanations for organizational governance form is not robust to the year of investigation, firm effects, or selection effects. We theorize that this outcome may result from dynamic processes through which a firm's organizational governance form evolves. We develop and test two hypotheses for the effects of organizational momentum on organizational governance form, and find that organizational momentum is a robust predictor. Our results suggest that researchers consider the dynamics of momentum in explaining the form of firm governance.