Plural Form and Firm Performance: Franchising in Europe

This paper deals with the relationships between plural form and performance in franchised networks in Europe. We propose that a firm's plural form affects performance both independently and jointly with other firm characteristics. The firm's life cycle stage and human capital assets are considered characteristics that influence the relationship between plural form and performance. We estimate the model using panel data on 41 publicly listed European franchising networks in the 1998-2007 period. We use the proportion of a network franchised units to the total number of its units in its distribution system as the indicator of its plural form (franchise proportion). Following an instrumental approach, we measure the network performance at the franchisor level by its industry-adjusted Return on Assets (ROA) and we use a relative stock market valuation measure of human capital intangibles. The results show that the impact of franchise proportion on performance is greater for firms with high human capital value compared with firms with low human capital value. We also find that, for middle-aged firms, franchise proportion has a smaller impact on firm performance than for oldest firms. By combining these results, we show that franchise proportion has a positive impact on performance only for youngest and oldest firms with high human capital value.