Chain Affiliation and Human Resource Investments: Evidence from the Restaurant Industry

Abstract

Drawing on organizational theory, agency theory, and research in strategic human resource management, this study explores how chain affiliation influences human resource (HR) investments using data from a nationally random survey of restaurant establishments. We propose that chain-affiliated units will make different investments in those areas of the HR system where chains establish superior organizational routines compared with nonaffiliated units. By contrast, we argue that in the absence of chain routines, ownership incentives will drive differences in human resource investments. Specifically, we find that franchisee-owned units focus more on cost reduction by underinvesting in human resource practices compared with company-owned units and independently owned units when organizational routines are not provided by the chain. We provide further support for our theoretical arguments using additional data on multiunit ownership and franchisor influence. Finally, we conduct supplemental analyses to explore the relationship between different human resource investments and two important organizational outcomes: employee turnover and customer satisfaction ratings from Yelp. Our results highlight the types of human resource practices that are important for service work and suggest that the provision of organizational routines can have important implications for the long-run success of chains and their units. Funding: Financial support from the Center for Advanced Human Resource Studies, Cornell University; and the Rockefeller Foundation is gratefully acknowledged. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2021.1539 .