Although the implications of adopting a franchising strategy in the restaurant industry have been examined in previous literature, the role of franchising has mostly been viewed as a means of growth, without much attention paid to its role in reducing risk via alleviating earnings volatility. In this study, we examine whether, and to what extent, franchising in restaurant firms can reduce earnings volatility occurring due to fluctuating economic conditions. Our longitudinal analysis of publicly traded restaurant firms from 1994 to 2012 shows that, during changes in economic conditions, firms adopting a high degree of franchising face lower earnings volatility than firms that adopt a restricted degree of franchising. Our article contributes to the literature on restaurant franchising as a risk-management strategy while providing avenues for future research.
All Science Journal Classification (ASJC) codes
- Tourism, Leisure and Hospitality Management