Factors Affecting Franchise Decisions in the Restaurant Industry

Abstract

Franchising captures a sizeable portion of the restaurant industry and plays an important role in its growth. However, despite the importance of franchising to the restaurant industry, little has been done to investigate the characteristics of restaurant firms that engage in franchising. This study intends to explain what characteristics of restaurant firms relate to franchising. Accordingly, a logistic regression model was developed to identify variables that best differentiate restaurant franchisor firms from nonfranchisor firms. The results indicated that (a) the degree of geographic dispersion and involvement in foreign countries increases the probability of becoming a restaurant franchisor; (b) as a restaurant firm ages, the probability of franchising decreases; and (c) the decrease of specific knowledge requirements increases the probability of franchising. This study also provides suggestions to help restaurant firms considering franchising for their operations.