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Franchising proportion and network failure

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Abstract

This paper investigates the relationship between franchising proportion of a network and firm failure. Drawing from resource scarcity and agency theories, we show that franchising firms that overfranchise and do not structure their networks in congruence with these two theories have lower survival prospects. We test our arguments with extensive data from nearly 5000 franchising firms listed in Entrepreneur magazine. The findings suggest that franchising proportion has a U-shape relationship with network failure. Additional analysis shows that firm size and geographic scope moderate the relationship between the squared term of franchising proportion and network failure. For franchisors, our results highlight the importance of maintaining an appropriate mix of franchised and firm-owned outlets within a network.

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Authors and Affiliations

  1. Department of Marketing, Florida Atlantic University, 777 Glades Rd, 318 Fleming Hall, Boca Raton, FL, USA

    Melih Madanoglu

  2. Department of Management Programs, Florida Atlantic University, 777 Glades Rd, Boca Raton, FL, 33431, USA

    Gary J. Castrogiovanni

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  1. Melih Madanoglu
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  2. Gary J. Castrogiovanni
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Correspondence to Melih Madanoglu.

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Madanoglu, M., Castrogiovanni, G.J. Franchising proportion and network failure. Small Bus Econ 50, 697–715 (2018). https://doi.org/10.1007/s11187-017-9890-6

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