An Empirical Examination of Financial Differences between Franchised and Non-Franchised Firms

While some restaurants expand exclusively through franchising, others are minimally engaged in franchising, or exclusively own and manage all of their units without franchising agreements. This paper employed five widely used financial indicators (financing and liquidity, profitability, efficiency, risk, and size) to investigate the differences in financial profiles between franchised and non-franchised restaurants. The samples was drawn from publicly available financial databases (COMPUSTAT) from 1997-2006. The research hypothesized that if the prevailing capital constraints of franchising theory hold true, we should observe considerable distinctions between the financial characteristics of franchised firms and non-franchised firms. The study provided empirical evidence supporting the position that significant differences exist in all financial dimensions between the two distinct organizational choices.