Small Business Economics

, Volume 50, Issue 4, pp 697–715 | Cite as

Franchising proportion and network failure

  • Melih MadanogluEmail author
  • Gary J. Castrogiovanni


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.


Franchise networks Firm failure Agency theory Resource scarcity 

JEL classification

C12 L26 L25 


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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Department of MarketingFlorida Atlantic UniversityBoca RatonUSA
  2. 2.Department of Management ProgramsFlorida Atlantic UniversityBoca RatonUSA

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