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The Effect of Franchising on Store Performance: Evidence from an Ownership Change

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  • Jeff Ackermann

    (Michigan State University, East Lansing, Michigan 48823)

Abstract

Although many franchisors choose to own some stores and franchise others, attempts to estimate the effect of franchising on store performance are hampered by an important selection issue: The franchisor may choose to assign the least desirable locations to franchisees. I overcome this issue by using a 2007 corporate sale that resulted in all franchisor-owned Applebee’s stores in Texas being sold to franchisees as a source of exogenous variation. I first find evidence that both observable and unobservable location-level factors were important in Applebee’s decision to own or franchise a store prior to the corporate sale. I next estimate the effect of franchising on store performance and find that franchising an Applebee’s store increases its alcohol revenues by 15%.

Suggested Citation

  • Jeff Ackermann, 2019. "The Effect of Franchising on Store Performance: Evidence from an Ownership Change," Management Science, INFORMS, vol. 65(11), pages 5188-5196, November.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:11:p:5188-5196
    DOI: 10.1287/mnsc.2019.3358
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    References listed on IDEAS

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    Cited by:

    1. Vázquez-Suárez, Luis & Mejía-Vásquez, Pericles Ramón & Serafim da Silva, Sheila & Sánchez-Gómez, Roberto, 2022. "Gender’s moderating role in the relationship between organisational form and performance in the Spanish supermarket industry," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    2. Ackermann, Jeff, 2024. "The effects of franchising on stores, competitors, and consumers," International Journal of Industrial Organization, Elsevier, vol. 93(C).
    3. Sánchez-Gómez, Roberto & Vázquez-Suárez, Luis, 2024. "Organizational structure and store performance in the grocery retail industry: The moderating role of narcissistic leadership," Journal of Retailing and Consumer Services, Elsevier, vol. 79(C).
    4. Lu, Jialiang & Zheng, Xu & Nervino, Esterina & Li, Yanzhi & Xu, Zhihua & Xu, Yabo, 2024. "Retail store location screening: A machine learning-based approach," Journal of Retailing and Consumer Services, Elsevier, vol. 77(C).

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