The franchisor-franchisee relationship is governed by contracts and trust. This paper analyzes how
formal (contracts) and relational (trust) governance mechanisms affected franchisor performance
in a service sector franchise for the period 2008¬2015. Using the SOM method in the empirical
analysis, the results revealed that trust-based governance was more prominent than contractbased
governance in the multi-unit franchise network and the cross-franchising network, negatively
affecting franchisor performance in the multi-unit franchise network and positively affecting
franchisor performance in the cross-franchising network. In contrast, contracts were more prominent
than trust in single-unit franchising, negatively affecting franchisor performance. The primary
practical implication is that the franchisor should prevent franchisees in the MUF network from
opening new outlets in the same city and competing for the existing outlet’s customers.
