Franchising and Productivity in the Retail Establishment Sector
Abstract: Franchising is a significant force in the American economy. As of the 2007 Economic Census, roughly ten percent of businesses are either a franchisee-owned business or are owned by a franchisor. While there has been significant research on the reasons for franchising, little work has examined the outcomes. This paper attempts to fill that gap. We employ a two stage process to determine how a business's productivity is impacted by being owned by a franchisee. The first stage uses data envelopment analysis to calculate each location's efficiency and obtain a ranking. These are then used as the dependent variable in Tobit regressions. Our results show that franchisee-owned stores in the retail trade sector rank higher and are more efficient than their franchisor-owned counterparts. We conclude by pointing out ways that our future research can build off of this paper.
