Organizational form and performance: The cinema chain case

In this article, we explore the relationship between the organizational form of a chain-affiliated establishment and its performance. Unlike previous studies focusing on retail or small service sectors, we consider an industry that requires large investments in equipment and facilities. Using cross-sectional data on Korean movie theatres, we find evidence that performance is higher in company-owned theatres than in franchised ones. We also find that company-owned theatres maintain higher-quality equipment compared to franchised theatres while setting prices higher. These findings and the observation that the share of franchised theatres falls over time in this industry are consistent with the implications of the capital-constraint argument for franchising rather than the agency-incentives argument.*