hsu, l., & jang, s. (2009), effects of restaurant franchising: does an optimal franchise...
DESCRIPTION
This is the presentation file I created for an HTM 681 class discussion. The contents are based on an Li-Tzang (Jane) Hsu and SooCheong (Shawn) Jang's article, Effects of Restaurant Franchising: Does an optimal franchise proportion exist? in International Journal of Hospitality Management Volume 28, Issue 2, June 2009, Pages 204-211.TRANSCRIPT
Effects of Restaurant Franchising: Does an optimal franchise proportion exist?
January 22Suh-hee Choi
HTM 681 2nd ArticleSpring 2009
Hsu, L., & Jang, S. (in press)
Does franchise influence a
restaurant firm’s performance?
franchiseVs.
non-franchise
Does optimal franchise proportion exist?
profitability
intangible value
Alon et al., 2004
Bradach, 1997“marginal costs= marginal benefits”
Resource scarcity theory (Hunt, 1973; Norton, 1988; Oxenfeldt & Thompson, 1968, Oxenfeldt & Kelly, 1969)
Agency theory (Rubin, 1978)Theories
Other things being equal
ResearchQuestion
s
Research based onthe empirical evidence
Spinelli et al., 2003; Aliouche and Schlentrich, 2005
• reduces investment cost / risk • disadvantages
Organizational learning theory (Sorenson & Sorenson, 2001)
Methodology
Methodology
Dependent variables
• ROA
• ROE
• Tobin’s Q
AssetsTotal
IncomeNet
_
_
EquityrStockholde
IncomeNet
_
_
assetstotal
deptbvsinventorieofbvassetliabilitystockofbvstockofnpriceshareTA
DEBTPSMVE
_
)___()__()__()_(
Methodology (cont.)
Independent variables• franchise proportion
• Controlled variables• leverage• firm size (economy of scale) • advertising • profitability (in Tobin’s Q model)
outletsofnTotal
outletsFranchised
___
_
Methodology
• T-test• compare the means between franchise / non-franchise ROA(ROE, Tobin’s Q
• Regression analysis
dummyFranchise
ADSIZEDEBTROEROA
_
)(
4
3210
Methodology
• Regression analysis
2
54
3210
%)(%
)(
FranchiseFranchise
ADSIZEDEBTROEROA
2
62
54
3210
%)(%
_'
FranchiseFranchiseAD
SIZEDEBTROAQsTobin
• normality natural log transformation• multicollinearity • heteroskedasticity
Results descriptive information
Results franchise vs. non-franchise
• profitability and intangible values are significantly higher in franchise firms than non-franchise firms
Results franchise vs. non-franchise
H1: Franchise restaurant firms have higher profitability and create more intangible value than non-franchise restaurant firms.
Results effects of franchise proportion
H2: There is non-linear relationship between franchise proportion and profitability and intangible value.
Results effects of franchise proportion
shaped
maximum ROA (ROE, Tobin’s Q)?
Results geography matters
• less dispersed max: 35% 36%
not significantsq% coefficient:negative linear
relationship
Results geography matters
• dispersed hard to monitor more franchising max: 52% 55% 43%
Conclusions
• Franchising betters financial performance / intangible value.
• Optimal proportions of franchising can be found (to maximize financial performance / intangible value).• other factors of optimal proportions might be
significant : geographical dispersion was tested.
limitations
• Didn’t include positioning and marketing concepts.
• Focused only on restaurant industry. • Limited data available (what about small
franchisors?)
Further studies
• Develop methodologies to find optimal points that consider both maximizing profits and reducing risks at the same time (e.g. Agency Theory (Rubin, 1978))
• What happens if OTHER THINGS ARE NOT EQUAL?
• Other benefits of franchising?• social values• sustainable relationships between the firms