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The Effect of Franchising on Establishment Performance in the U.S. Restaurant Industry

24 Pages Posted: 15 Dec 2016 Last revised: 11 Apr 2017

Matthew Sveum

University of Missouri - Department of Agricultural and Applied Economics

Michael E. Sykuta

University of Missouri at Columbia - Contracting and Organizations Research Institute (CORI); University of Missouri at Columbia - Division of Applied Social Sciences

Date Written: April 10, 2017

Abstract

While there has been significant research on the reasons for franchising, little work has examined the effects of franchising on establishment performance. This paper attempts to fill that gap. We use restricted-access US Census Bureau microdata from the 2007 Census of Retail Trade to examine establishment-level productivity of franchisee- and franchisor-owned restaurants. We do this by employing a two-stage data envelopment analysis model where the first stage uses DEA to measure each establishment’s efficiency. The DEA efficiency score is then used as the second-stage dependent variable. The results show a strong and robust effect attributed to franchisee ownership for full service restaurants, but a smaller and insignificant difference for limited service restaurants. We believe the differences in task programmability between limited and full service restaurants results in a very different role for managers/franchisees and is the driving factor behind the different results.

Keywords: Franchising, restaurants, data envelopment analysis, efficiency

JEL Classification: D23, D24, L83

Suggested Citation

Sveum, Matthew and Sykuta, Michael E., The Effect of Franchising on Establishment Performance in the U.S. Restaurant Industry (April 10, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP- 16-54. Available at SSRN: https://ssrn.com/abstract=2883267 or http://dx.doi.org/10.2139/ssrn.2883267

Matthew Sveum (Contact Author)

University of Missouri - Department of Agricultural and Applied Economics ( email )

Mumford Hall
Columbia, MO 65211
United States

Michael Sykuta

University of Missouri at Columbia - Contracting and Organizations Research Institute (CORI) ( email )

135 Mumford Hall
Columbia, MO 65211
United States
573-882-1738 (Phone)

HOME PAGE: http://cori.missouri.edu

University of Missouri at Columbia - Division of Applied Social Sciences ( email )

135 Mumford Hall
Columbia, MO 65211
United States

HOME PAGE: http://michaelsykuta.com

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