Abstract
This paper investigates the basic risk and incentives relationship in franchising companies. The results of past research reflect volatile influence of risk and incentives. An in-depth analysis of this relationship was conducted using case study approach, including 12 international franchise firms of two types. Our study included retail and service franchising. Findings from this research confirm basic agency theory predictions. The risk-incentives relationship is negatively correlated in retail franchise companies, due to lower royalties in the sector. Service franchise companies do not follow the same concept, due to their adaptability of franchise system to local markets. We believe service franchise systems might be responsible for volatility. However, both types of companies nurture and develop strategies based on experience and intuition. Findings of the research offer important insights in understanding the nature of franchisor’s risk perception, as the basic underlying mechanism to the risk and incentives relationship.