Franchising proportion and network failure

Melih Madanoglu () and Gary J. Castrogiovanni ()
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Melih Madanoglu: Florida Atlantic University
Gary J. Castrogiovanni: Florida Atlantic University

Small Business Economics, 2018, vol. 50, issue 4, No 3, 697-715

Abstract: 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.

Keywords: Franchise networks; Firm failure; Agency theory; Resource scarcity (search for similar items in EconPapers)
JEL-codes: C12 L25 L26 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11187-017-9890-6

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