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Franchising proportion and network failure

Author

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  • Melih Madanoglu

    (Florida Atlantic University)

  • Gary J. Castrogiovanni

    (Florida Atlantic University)

Abstract

This paper investigates the relationship between franchising proportion of a network and firm failure. Drawing from resource scarcity and agency theories, we show that franchising firms that overfranchise and do not structure their networks in congruence with these two theories have lower survival prospects. We test our arguments with extensive data from nearly 5000 franchising firms listed in Entrepreneur magazine. The findings suggest that franchising proportion has a U-shape relationship with network failure. Additional analysis shows that firm size and geographic scope moderate the relationship between the squared term of franchising proportion and network failure. For franchisors, our results highlight the importance of maintaining an appropriate mix of franchised and firm-owned outlets within a network.

Suggested Citation

  • Melih Madanoglu & Gary J. Castrogiovanni, 2018. "Franchising proportion and network failure," Small Business Economics, Springer, vol. 50(4), pages 697-715, April.
    • Handle: RePEc:kap:sbusec:v:50:y:2018:i:4:d:10.1007_s11187-017-9890-6
    DOI: 10.1007/s11187-017-9890-6
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    References listed on IDEAS

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    Cited by:

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    2. Melih Madanoglu & Esra Memili & Alfredo De Massis, 2020. "Home-based family firms, spousal ownership and business exit: a transaction cost perspective," Small Business Economics, Springer, vol. 54(4), pages 991-1006, April.

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    More about this item

    Keywords

    Franchise networks; Firm failure; Agency theory; Resource scarcity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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