Firm Survival and Growth in Retail and Service Industries: Evidence from Franchised Chains

Renata Kosova and Francine Lafontaine ()
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Renata Kosova: The George Washington University School of Business

Working Papers from School of Business, The George Washington University

Abstract: This paper analyzes the survival and growth of franchised chains using an unbalanced panel dataset that covers about 1000 of them each year from 1980 to 2001. We do this in part because franchised chains are an important segment of the retail sector, which has received relatively little attention in this literature. More importantly, however, these chains are exactly the type of single-product entities that models of firm dynamics are about, which in turn means we can test the implications of the models more directly. Finally, we have data on chain characteristics, and our relatively long panel dataset allows us to control for “chain-level” fixed effects. We find that several chain characteristics affect the survival and growth of these chains. We also find that controlling for fixed effects has an important impact on some of the conclusions we reach. In particular, contrary to the established result that firm size reduces exit, we find that chain size increases the chain exit hazard rate when we control for chain-level fixed effects. This result and several other findings imply a tendency toward chain-specific sizes in our data. We argue that this size convergence arises more clearly in our context than in studies of manufacturing concerns exactly because of the single-product nature of franchised chains.

Date: 2006-06
New Economics Papers: this item is included in nep-bec and nep-ent
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