Franchising structure changes and shareholder value: Evidence from store buybacks and refranchising

Anna Sadovnikova (), Manish Kacker () and Saurabh Mishra ()
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Anna Sadovnikova: Monmouth University
Manish Kacker: McMaster University
Saurabh Mishra: George Mason University

Journal of the Academy of Marketing Science, 2023, vol. 51, issue 5, No 7, 1098-1117

Abstract: Abstract Drawing on agency theory and transaction cost analysis, this study investigates the impact of refranchising and buybacks of downstream retail units by franchising firms on shareholder value (i.e., stock returns). It further evaluates the contingency role of firm and industry factors in shaping this impact. An event study analysis over the years 2001–2020 confirms that both refranchising and buybacks positively affect stock returns. However, notable impact differences emerge between the two types of strategic decisions. For refranchising, firms with lower royalty rates, smaller returns-on-assets (ROA), and higher trade credit provided generate higher stock returns. Whereas, for buybacks, firms with higher royalty rates derive more value in stock markets. Analysis further shows that investors judge refranchising (buybacks) less (more) favorably in munificent industries, but industry dynamism has no effect on the stock returns generated from these moves. Together, the study offers important implications for franchising theory and retail practice in marketing.

Keywords: Franchising; Agency theory; Transaction cost analysis; Marketing-finance interface; Event study (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11747-022-00921-3

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