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New Firm Survival: Institutional Explanations for New Franchisor Mortality

Author

Listed:
  • Scott Shane

    (Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02146)

  • Maw-Der Foo

    (Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02146 and National University of Singapore)

Abstract

Why do some new firms succeed and others fail? Economists argue that new firms fail because entrepreneurs inefficiently manage production and organizational design (Williamson 1985). Sociologists (e.g., Granovetter 1985) have typically viewed this explanation as undersocialized, and argue that institutional legitimacy must also be considered to explain the survival of new firms. This paper examines the survival of 1292 new franchisors established in the United States from 1979--1996. The results show that institutional legitimacy adds to economic explanations for the survival of new franchisors and suggests the importance of a properly socialized explanation.

Suggested Citation

  • Scott Shane & Maw-Der Foo, 1999. "New Firm Survival: Institutional Explanations for New Franchisor Mortality," Management Science, INFORMS, vol. 45(2), pages 142-159, February.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:2:p:142-159
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    File URL: http://dx.doi.org/10.1287/mnsc.45.2.142
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    References listed on IDEAS

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    1. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    2. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
    3. Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
    4. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
    5. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    6. Martin, Robert E, 1988. "Franchising and Risk Management," American Economic Review, American Economic Association, vol. 78(5), pages 954-968, December.
    7. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    8. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    9. Levinthal, Daniel, 1988. "A survey of agency models of organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 9(2), pages 153-185, March.
    10. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-233, April.
    11. Brickley, James A & Dark, Frederick H & Weisbach, Michael S, 1991. "The Economic Effects of Franchise Termination Laws," Journal of Law and Economics, University of Chicago Press, vol. 34(1), pages 101-132, April.
    12. Klein, Benjamin, 1995. "The economics of franchise contracts," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 9-37, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Francisco Díez-Martín & Alicia Blanco-González & Camilo Prado-Román, 2016. "Explaining nation-wide differences in entrepreneurial activity: a legitimacy perspective," International Entrepreneurship and Management Journal, Springer, vol. 12(4), pages 1079-1102, December.
    2. repec:spr:busres:v:10:y:2017:i:1:d:10.1007_s40685-016-0041-8 is not listed on IDEAS
    3. Ma, Tiejun & Tang, Leilei & McGroarty, Frank & Sung, Ming-Chien & Johnson, Johnnie E. V, 2016. "Time is money: Costing the impact of duration misperception in market prices," European Journal of Operational Research, Elsevier, vol. 255(2), pages 397-410.
    4. Barthélemy, Jérôme, 2011. "Agency and institutional influences on franchising decisions," Journal of Business Venturing, Elsevier, vol. 26(1), pages 93-103, January.
    5. Pe'er, Aviad & Keil, Thomas, 2013. "Are all startups affected similarly by clusters? Agglomeration, competition, firm heterogeneity, and survival," Journal of Business Venturing, Elsevier, vol. 28(3), pages 354-372.
    6. repec:kap:ejlwec:v:44:y:2017:i:3:d:10.1007_s10657-015-9497-9 is not listed on IDEAS
    7. repec:spr:intemj:v:13:y:2017:i:3:d:10.1007_s11365-016-0423-6 is not listed on IDEAS
    8. Scott Shane & Venkatesh Shankar & Ashwin Aravindakshan, 2006. "The Effects of New Franchisor Partnering Strategies on Franchise System Size," Management Science, INFORMS, vol. 52(5), pages 773-787, May.
    9. Franziska Stelzer, 2008. "Legitimierungsstrategien junger Unternehmen - Ergebnisse einer experimentellen Studie," Schumpeter Discussion Papers sdp08006, Universitätsbibliothek Wuppertal, University Library.
    10. Odile Chanut & Nadjoua Gharbi & Dominique Bonet Fernandez & Muhammad Shahbaz & E. Hachemi Aliouche, 2013. "Institutional Environments and the Internationalization of Franchise Chains: The Contrasting Cases of Three North African Countries," Working Papers 2013-39, Department of Research, Ipag Business School.
    11. Der Foo, Maw & Kam Wong, Poh & Ong, Andy, 2005. "Do others think you have a viable business idea? Team diversity and judges' evaluation of ideas in a business plan competition," Journal of Business Venturing, Elsevier, vol. 20(3), pages 385-402, May.
    12. Monika Hamori, 2006. "Are franchises bad employers?," Working Papers Economia wp06-11, Instituto de Empresa, Area of Economic Environment.
    13. Pierre Azoulay & Scott Shane, 2001. "Entrepreneurs, Contracts, and the Failure of Young Firms," Management Science, INFORMS, vol. 47(3), pages 337-358, March.
    14. repec:bla:stratm:v:38:y:2017:i:8:p:1668-1687 is not listed on IDEAS
    15. repec:kap:sbusec:v:50:y:2018:i:4:d:10.1007_s11187-017-9890-6 is not listed on IDEAS
    16. repec:ipg:wpaper:2013-039 is not listed on IDEAS
    17. Aviad Pe'er & Ilan Vertinsky & Thomas Keil, 2016. "Growth and survival: The moderating effects of local agglomeration and local market structure," Strategic Management Journal, Wiley Blackwell, vol. 37(3), pages 541-564, March.
    18. Khan Muhammad Rahatullah, 2013. "The Franchisee Perception of Achieving Success in Entrepreneurial Businesses," Entrepreneurship Research Journal, De Gruyter, vol. 3(4), pages 505-525, July.
    19. repec:ipg:wpaper:39 is not listed on IDEAS
    20. repec:gam:jsusta:v:9:y:2017:i:8:p:1419-:d:107916 is not listed on IDEAS
    21. Sargent, John & Matthews, Linda, 2009. "China versus Mexico in the Global EPZ Industry: Maquiladoras, FDI Quality, and Plant Mortality," World Development, Elsevier, vol. 37(6), pages 1069-1082, June.
    22. Steven C. Michael, 2010. "Franchising," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 19 Edward Elgar Publishing.
    23. Lucio Fuentelsaz & Consuelo González-Gil & Juan P. Maicas, 2015. "What determines entepreneurial failure: taking advantage of the institutional context," Documentos de Trabajo dt2015-05, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    24. Igor Laine & Tamara Galkina, 0. "The interplay of effectuation and causation in decision making: Russian SMEs under institutional uncertainty," International Entrepreneurship and Management Journal, Springer, vol. 0, pages 1-37.

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