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Survival patterns among newcomers to franchising

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  • Bates, Timothy

Abstract

This study analyzes survival patterns among franchisee firms adn establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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Suggested Citation

  • Bates, Timothy, 1998. "Survival patterns among newcomers to franchising," Journal of Business Venturing, Elsevier, vol. 13(2), pages 113-130, March.
  • Handle: RePEc:eee:jbvent:v:13:y:1998:i:2:p:113-130
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    References listed on IDEAS

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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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    Cited by:

    1. Hannu Niittykangas & Hannu Tervo, 2005. "Spatial variations in intergenerational transmission of self-employment," Regional Studies, Taylor & Francis Journals, vol. 39(3), pages 319-332.
    2. Arturs Kalnins & Kyle J. Mayer, 2004. "Franchising, Ownership, and Experience: A Study of Pizza Restaurant Survival," Management Science, INFORMS, vol. 50(12), pages 1716-1728, December.
    3. Westhead, Paul & Wright, Mike & Ucbasaran, Deniz, 2001. "The internationalization of new and small firms: A resource-based view," Journal of Business Venturing, Elsevier, vol. 16(4), pages 333-358, July.
    4. Aki Kangasharju & Sari Pekkala, 2001. "The Role of Education in Self-Employment Success," Studies in Economics 0116, School of Economics, University of Kent.
    5. repec:kap:ejlwec:v:44:y:2017:i:3:d:10.1007_s10657-015-9497-9 is not listed on IDEAS
    6. Francine Lafontaine & Margaret E. Slade, 1998. "Incentive Contracting and the Franchise Decision," NBER Working Papers 6544, National Bureau of Economic Research, Inc.
    7. Bradley, Steven W. & Wiklund, Johan & Shepherd, Dean A., 2011. "Swinging a double-edged sword: The effect of slack on entrepreneurial management and growth," Journal of Business Venturing, Elsevier, vol. 26(5), pages 537-554, September.
    8. Gary Castrogiovanni & Robert Justis, 2007. "Franchise failure: a reassessment of the Bates (1995) results," Service Business, Springer;Pan-Pacific Business Association, vol. 1(3), pages 247-256, September.
    9. Francine Lafontaine & Marek Zapletal & Xu Zhang, 2017. "Brighter Prospects? Assessing the Franchise Advantage using Census Data," Working Papers 17-21, Center for Economic Studies, U.S. Census Bureau.
    10. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers 1502, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    11. Frazer, Lorelle & Winzar, Hume, 2005. "Exits and expectations: why disappointed franchisees leave," Journal of Business Research, Elsevier, vol. 58(11), pages 1534-1542, November.
    12. Holmberg, Stevan R. & Morgan, Kathryn Boe, 2003. "Franchise turnover and failure: New research and perspectives," Journal of Business Venturing, Elsevier, vol. 18(3), pages 403-418, May.
    13. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers halshs-01128075, HAL.
    14. Andrew Eckert & Douglas West, 2008. "Firm Survival and Chain Growth in a Privatized Retail Liquor Store Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(1), pages 1-18, February.
    15. repec:gam:jsusta:v:9:y:2017:i:8:p:1419-:d:107916 is not listed on IDEAS
    16. Garg, Viany K. & Rasheed, Abdul A., 2003. "International multi-unit franchising: an agency theoretic explanation," International Business Review, Elsevier, vol. 12(3), pages 329-348, June.
    17. Stanworth, John & Curran, James, 1999. "Colas, burgers, shakes, and shirkers: Towards a sociological model of franchising in the market economy," Journal of Business Venturing, Elsevier, vol. 14(4), pages 323-344, July.
    18. Francesco Baldi, 2016. "Multi-unit franchising strategies: a real options logic," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 43(2), pages 175-217, June.

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