An Analysis of Shareholder Return in Public Franchisor Companies

Abstract

This is the first study to measure the performance of public franchisors. Shareholder return, shareholder risk, and company characteristics are analyzed in an effort to model higher performing public franchisor companies. Enhanced growth and scale provides a superior return to shareholders. By examining the characteristics of 91 public franchisors we develop a descriptive and predictive model of the superior public franchisor performer. Our study covers a 10-year period from January 1990 to December 1999. Cumulative shareholder return for public franchisors is favorably compared to the Standard and Poor's 500 for all but the last year of the study. Also, there are clearly described characteristics of superior franchisor performers. The implication for the practitioner is that a strategy of concept development through franchising and public capital acquisition can provide superior returns. For scholars, this study extends our understanding of the theoretical advantages and limitations of franchising.