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Brighter prospects? Assessing the franchise advantage using census data
Author(s) -
Lafontaine Francine,
Zapletal Marek,
Zhang Xu
Publication year - 2018
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12289
Subject(s) - microdata (statistics) , franchise , census , selection bias , small business , business , selection (genetic algorithm) , marketing , empirical evidence , economics , actuarial science , statistics , computer science , population , philosophy , demography , mathematics , epistemology , artificial intelligence , sociology
This paper uses Census microdata to examine how starting a business as a franchise rather than an independent business affects its survival and growth prospects. We assess factors that influence the decision to become a franchisee and use various empirical approaches to correct for selection bias in our performance analyses. We find that franchised businesses on average exhibit higher survival rates than independent businesses; but importantly, the difference is small compared with claims in the trade press. The effect is also short lived: conditional on surviving a year or two, we no longer find survival (or growth) differences. We then explore two potential sources for this small survival advantage, namely franchisors’ screening process and the benefits arising from the brand and business know‐how provided by franchisors. We find evidence that both of the sources contribute to the franchising advantage.