The objective of this study is to explain how informal control mechanism stimulates innovation. A survey data of 106 outlets of franchise networks located in France, using Partial least squares (PLS) method, indicates that informal control mechanism is positively related to innovation (in term of administrative innovation, process innovation and product innovation) and a part of this positive relationship can be explained by the mediating effect of knowledge diffusion. This result has a major contribution in understanding the complex relationship between control system and innovation.