A comparison of the impact of franchising on return and risk for two Australian industries

Publisher: John Wiley & Sons Inc

E-ISSN: 1467-6303|23|2|193-205

ISSN: 0155-9982

Source: ACCOUNTING FORUM, Vol.23, Iss.2, 1999-06, pp. : 193-205

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Abstract

Since the mid‐1960s the ‘franchise phenomenon’ has had a significant impact on the Australian economy, generating a large proportion of its gross retail trade. However, little work has so far been conducted in measuring the relative effectiveness of franchising, especially in terms of the associated risk. Where risk has been measured, it has normally been expressed in terms of survival rates relative to non‐franchised entities (for example, Williams 1991; Newby, Smith and Armstrong 1993). This paper argues that the use of firm survival as the measure expressing the success of franchising is short‐sighted and inadequate, since it ignores the effect of franchising on surviving firms, and presents results from two industries, to determine whether franchises generate higher financial returns than non‐franchises, and if there is any difference in the risk of those returns. The results indicate that franchising does have an impact on both risk and return, but not one which is consistent across all industries.