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Is franchising an additional financing source for franchisors? A Blinder–Oaxaca decomposition analysis

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  • Kwangmin Park

    (Sejong University, South Korea)

  • SooCheong (Shawn) Jang

    (Purdue University, USA)

Abstract

Numerous studies have used agency theory (Jensen and Meckling, 1976) and capital scarcity theory (Oxenfeldt and Kelly, 1969) to explain franchising motivations. Although both theories may in part account for why firms choose to franchise, past studies have not seriously considered the potential relationship between franchising and capital structures. Using Blinder–Oaxaca decomposition analysis, this study examined the impact of franchising on short- and long-term debt leverage. The final sample included 191 restaurant firms from 1980 to 2015. Sixty-five firms were non-franchise firms, while 126 firms engaged in the franchising business. The results of the Blinder–Oaxaca decomposition analysis showed that franchising has a significant effect on decreasing long-term debts and confirmed that franchising plays an important role as an additional source of long-term capital. Consequently, the capital scarcity theory is supported as one aspect of long-term debt leverage. However, franchise restaurant firms have larger short-term debt than non-franchise firms, although it is merely marginally significant. This contradicts capital scarcity theory but is in accordance with some past studies (e.g. Norton, 1988; 1995). This implies that franchisors constantly need short-term capital to support franchisees.

Suggested Citation

  • Kwangmin Park & SooCheong (Shawn) Jang, 2018. "Is franchising an additional financing source for franchisors? A Blinder–Oaxaca decomposition analysis," Tourism Economics, , vol. 24(5), pages 541-559, August.
    • Handle: RePEc:sae:toueco:v:24:y:2018:i:5:p:541-559
    DOI: 10.1177/1354816618757561
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    Cited by:

    1. Rafiuddin Ahmed & Rafiqul Bhuyan, 2020. "Capital Structure and Firm Performance in Australian Service Sector Firms: A Panel Data Analysis," JRFM, MDPI, vol. 13(9), pages 1-16, September.
    2. Kwangmin Park & SooCheong (Shawn) Jang, 2019. "Cash regimes and the franchise system: An extension of the marginal value of cash," Tourism Economics, , vol. 25(2), pages 235-252, March.
    3. Jaehee Gim & SooCheong Jang, 2024. "The determinants of aggressive share buybacks: An empirical examination of U.S. publicly traded restaurant firms," Tourism Economics, , vol. 30(1), pages 132-151, February.

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