RESULTS

The model chi-square indicates that the model to predict the survival of new franchise systems is significantly different from the baseline model.

The results provide support for seven of the eight hypotheses. The first hypothesis was strongly supported. Permitting passive ownership has a significant negative effect on new franchise system survival. The second hypothesis received strong support. A high level of monitoring efficiency had a significant positive effect on new franchise system survival. The third hypothesis was strongly supported. The more geographically concentrated the franchiserís expansion strategy, the higher the probability of system survival. The fourth hypothesis received strong support. The higher the royalty rate as a percentage of franchisee sales, the more likely the new franchise system was to survive. The strong effect of the royalty rate is a function of the restricted range of royalty rates used in franchising. Although one might argue, theoretically, that the effect of the royalty rate should be curvilinear, the effect is linear over the observed range for this sample of new franchisers. Inclusion of a royalty rate squared term did not provide a significantly better fit of the model than did the effect of the linear effect; and a plot of the royalty variable indicates that it was linear. This finding supports the hypothesis that the effect of the royalty rate on the survival of new franchisers is positive and linear. However, it does raise the question of why franchisers do not adopt royalty rates that are so high as to become counter productive for survival. The fifth hypothesis was weakly supported. Using master franchise agreements had a negative effect on new franchise system survival. The sixth hypothesis was not supported, although the effect was signed in the hypothesized direction. Lower franchise fees were not significantly associated with the survival of new franchise systems. (One possible reason for this lack of support was that high franchise fees might also have the positive effect of generating resources for the franchiser. Therefore, the negative and positive effects of high franchise fees on franchise system survival might have canceled each other out.) The seventh hypothesis was strongly supported. The longer the term of the initial franchise agreement, the higher the probability of new franchise system survival. The eighth hypothesis received strong support. The more complex the franchise concept, the less likely the new franchise system was to survive.

Among the control variables, industry was significant. Franchise systems in the health and beauty, recreation, retail food, restaurant, non-food retail and hotel/motel industries were significantly more likely than franchise systems in the business services industry to survive. To ensure that the results were not an artifact of the industry in which the dummy variable was excluded, the regressions were rerun with each of the industries excluded in turn. The results did not change. One reason for this finding might be that these industries are more munificent than other industries, with higher rates of overall sales growth during the period studied. Another explanation might be that these industries are ones with lesser amounts of price competition, which inhibits survival.

The age of the firm at the time that franchising began also had a significant positive effect on the survival of the franchise system. This finding suggests that liabilities of newness exist for an organization's adoption of an organizational form, not just for the continued survival of the organization itself.

The year that the firm first began to franchise did not have a significant effect on the survival of the franchise system. One explanation for this result might be found in the death rate of new franchise systems. Shane (forthcoming) found that the death rate of new franchisers slows considerably after the fourth year of franchise system life. Therefore, franchise systems which reach their thirteenth anniversary are not very different from franchise systems that reach their eleventh or twelfth anniversary.

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Last Updated 4/24/97 by Jo Ann Mathieu

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