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Time will tell: interaction effects of franchising percentages and age on franchisor mortality rates

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Abstract

Drawing from franchising and organizational ecology literatures, we hypothesize that franchising provides benefits to franchisors by addressing issues of adverse selection, moral hazard, holdup, obsolescence, and senescence. We assert that, over time, these benefits increase such that the more a franchise chain utilizes franchisees rather than company-owned outlets, the greater the franchising benefits accrue to the franchisor. We test our propositions by studying the mortality rates of 393 franchise organizations in the U.S. automotive products and services sector over the 21-year time period 1985–2005, using proportional hazard analysis. We find that older franchise chains with higher percentages of franchised units have lower mortality rates than older franchise chains with lower percentages of franchised units. We also find that younger franchise chains with higher percentages of franchised units have higher mortality rates than younger franchise chains with lower percentages of franchised units.

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Notes

  1. We also estimated models using Cox regression. All coefficients had the same signs in both models, and both models were significant at p > .0000. However, significance levels were higher for all variables in the Weibull model, and the significance level was higher for the Weibull model as a whole as indicated by the likelihood ratio.

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Authors and Affiliations

  1. Eastern Illinois University, 3010 Lumpkin Hall, Charleston, IL, 61920, USA

    Michael E. Dobbs

  2. Eastern Illinois University, 3014 Lumpkin Hall, Charleston, IL, 61920, USA

    David J. Boggs

  3. Eastern Illinois University, 4002 Lumpkin Hall, Charleston, IL, 61920, USA

    Marko Grünhagen

  4. Marketing Department, Universidad de Zaragoza, Zaragoza, 50007, Spain

    Laura Lucia Palacios

  5. Eastern Illinois University, 4611 Lumpkin Hall, Charleston, IL, 61920, USA

    Richard L. Flight

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  1. Michael E. Dobbs
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  2. David J. Boggs
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  3. Marko Grünhagen
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  4. Laura Lucia Palacios
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  5. Richard L. Flight
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Correspondence to Marko Grünhagen.

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Dobbs, M.E., Boggs, D.J., Grünhagen, M. et al. Time will tell: interaction effects of franchising percentages and age on franchisor mortality rates. Int Entrep Manag J 10, 607–621 (2014). https://doi.org/10.1007/s11365-012-0245-0

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