Brighter Prospects? Assessing the Franchise Advantage Using Census Data

23 Pages Posted: 11 Apr 2019

See all articles by Francine Lafontaine

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Marek Zapletal

The Brattle Group

Xu Zhang

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: Summer 2019

Abstract

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.

Keywords: Business growth, business survival, entrepreneurship, franchising, independent business, know‐how, retail, screening, services, Survey of Business Owners (SBO)

Suggested Citation

Lafontaine, Francine and Zapletal, Marek and Zhang, Xu, Brighter Prospects? Assessing the Franchise Advantage Using Census Data (Summer 2019). Journal of Economics & Management Strategy, Vol. 28, Issue 2, pp. 175-197, 2019, Available at SSRN: https://ssrn.com/abstract=3369872 or http://dx.doi.org/10.1111/jems.12289

Francine Lafontaine (Contact Author)

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
734-647-4915 (Phone)
734-936-0279 (Fax)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Marek Zapletal

The Brattle Group ( email )

201 Mission Street, Suite 2800
San Francisco, CA 94105
United States

Xu Zhang

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu/faculty-and-research/faculty/profiles/x/xu-zhang

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