The Effect of Franchising on Store Performance: Evidence from an Ownership Change

Jeff Ackermann ()
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Jeff Ackermann: Michigan State University, East Lansing, Michigan 48823

Management Science, 2019, vol. 65, issue 11, 5188-5196

Abstract: Although many franchisors choose to own some stores and franchise others, attempts to estimate the effect of franchising on store performance are hampered by an important selection issue: The franchisor may choose to assign the least desirable locations to franchisees. I overcome this issue by using a 2007 corporate sale that resulted in all franchisor-owned Applebee’s stores in Texas being sold to franchisees as a source of exogenous variation. I first find evidence that both observable and unobservable location-level factors were important in Applebee’s decision to own or franchise a store prior to the corporate sale. I next estimate the effect of franchising on store performance and find that franchising an Applebee’s store increases its alcohol revenues by 15%.

Date: 2019
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