Effect of New Regulation on Franchising Performance: An Exploratory Study in Spain

  • Victoria Bordonaba-Juste
  • Laura Lucia-Palacios
  • Yolanda Polo-Redondo
Part of the Contributions to Management Science book series (MANAGEMENT SC.)


Compulsory franchising regulation in Spain was introduced in 1998. Until then, franchising had had no specific regulation and was regulated by general commercial laws. This paper examines the effect of the change from a general regulation to a franchise-specific legislation on survival rates and discontinuance rates in the Spanish market. We use a descriptive methodology and a comparison between survival curves. After controlling for time-in-market, results suggest that, after regulation, there is an increase in the organizational failure rates but a decrease in discontinuance rates. Furthermore, regulation affects foreign franchisors slightly more negatively than domestic ones and the reaction of growing firms is different from that of firms with negative growth.


Domestic Firm Discontinuance Rate Legal Environment Franchise System Spanish Market 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Anntonen N, Tunnanen M, Alon I (2005) The international business environments of franchising in Russia. Acad Market Sci Rev 5:http://www.amsreview.org/articles/anttonen05-2005.pdfB
  2. Azoulay P, Shane SA (2001) Entrepreneurs, contracts and the failure of young firms. Manag Sci 47(3):337–358CrossRefGoogle Scholar
  3. Barbadillo Associates (1995–2004) Franchise Annuals of Barbadillo Associates. Gestión 2000Google Scholar
  4. Bates T (1995a) A comparison of franchise and independent small business survival rates. Small Bus Econ 7(5):377–388CrossRefGoogle Scholar
  5. Bates T (1995b) Analysis of survival rates among franchise and independent small business startups. J Small Bus Manag 33(2):26–36Google Scholar
  6. Bates T (1998) Survival patterns among newcomers to franchising. J Bus Venturing 13(2):113–130CrossRefGoogle Scholar
  7. Beales H, Muris TJ (1995) The foundations of franchise regulation: issues and evidence. J Corp Finance 2(1):157–197CrossRefGoogle Scholar
  8. Bordonaba-Juste V, Lucia-Palacios L, Polo-Redondo Y (2009) Franchise firm entry time influence on long-term survival. Int J Retail Distrib Manag 37(2):106–125CrossRefGoogle Scholar
  9. Brickley JA (2002) Royalty rates and upfront fees in share contracts: evidence from franchising. J Law Econ Organ 18(2):511–535CrossRefGoogle Scholar
  10. Castrogiovanni GJ, Justis RT, Julian SD (1993) Franchise failure rates: an assessment of magnitude and influencing factors. J Small Bus Manag 16(2):105–114Google Scholar
  11. European Franchise Federation (2008) The European franchise federation’s newsletter. September 2008Google Scholar
  12. European Commission (2005) Statistical annex to European economy. Spring 2005Google Scholar
  13. Falbe CM, Welsh DHB (1998) NAFTA and franchising: a comparison of franchisor perceptions of characteristics associated with franchisee success and failure in Canada, Mexico and United States. J Bus Venturing 13(2):151–171CrossRefGoogle Scholar
  14. Fernandez-Monroy M, Melián-Alzola L (2005) An analysis of quality management in franchise systems. Eur J Market 39(5/6):585–605CrossRefGoogle Scholar
  15. Franchisa (1985–2004) Franchise Annuals of Franchisa. FranchisaGoogle Scholar
  16. Frazer L (2001) Causes of disruption of franchise operations. J Bus Res 54:227–234CrossRefGoogle Scholar
  17. Frazer L, Winzar H (2005) Exits and expectations: why disappointed franchisees leave. J Bus Res 58(11):1534–1542CrossRefGoogle Scholar
  18. Fulop C (2000) History and development. In: Lashley C, Morrison A (eds) Franchising hospitality services. Butterworth-Heinemann, Oxford, pp 22–43CrossRefGoogle Scholar
  19. Fulop C, Forward J (1997) Insights into franchising: a review of empirical and theoretical perspectives. Serv Ind J 17(4):603–625CrossRefGoogle Scholar
  20. Grunhagen M, Dorsch MJ (2003) Does the franchisor provide value to franchisees? Past, current and future value assessments of two franchisee types. J Small Bus Manag 41(4):366–384CrossRefGoogle Scholar
  21. Hackett DW (1976) The international expansion of U.S. franchise systems: status and strategies. J Int Bus Stud 7:65–75CrossRefGoogle Scholar
  22. Hing N (1999) Maximizing franchisee satisfaction in the restaurant sector. J Consum Market 16(5):502–513CrossRefGoogle Scholar
  23. Holmberg SR, Morgan KB (2003) Franchise turnover and failure. New research and perspectives. J Bus Venturing 18(3):403–418CrossRefGoogle Scholar
  24. Hoy F, Hoy EM (1994) Double your trouble through international franchising: Arby’s goes to Mexico. frontiers of entrepreneurship research. Babson College, Wellsley Hills, MAGoogle Scholar
  25. Lafontaine F, Shaw KL (1998) Franchising growth and franchisor entry and exit in the U.S. market: myth and reality. J Bus Venturing 13:95–112CrossRefGoogle Scholar
  26. Lim J, Frazer L (2002) The effect of regulation: an analysis of the Australian franchise code of conduct. J Market Channels 10(2):39–56CrossRefGoogle Scholar
  27. Marvel HP (1995) Tying, franchising and gasoline service stations. J Corp Finance 2:199–225CrossRefGoogle Scholar
  28. Michael SC, Combs JG (2008) Entrepreneurial failure: the case of franchisees. J Small Bus Manag 46(1):73–90CrossRefGoogle Scholar
  29. Miller K (1992) A framework for integrated risk management in international business. J Int Bus Stud 23(2):311–322CrossRefGoogle Scholar
  30. Perrigot R, Cliquet G, Mesbah M (2004) Possible applications of survival analysis in franchising research. Int Rev Retail Distrib Consum Res 14(1):129–143CrossRefGoogle Scholar
  31. Price R (2000) Voluntary earnings disclosures in uniform franchise offering circulars. J Account Econ 28(3):391–423CrossRefGoogle Scholar
  32. PriceWaterhouseCoopers and International Franchise Association (2006) Economic impact of franchised businesses, Vol 2. PriceWaterhouseCoopers. Eds. IFA Education FoundationGoogle Scholar
  33. Real Decreto 2485/1998 Artículo de Ordenación del Comercio Minorista, relativo a la regulación del régimen de franquicia y se crea el Registro de Franquiciadores. http://www.boe.es/boe/dias/1998/11/26/pdfs/A38859–38862.pdfGoogle Scholar
  34. Shane S (2001) Organizational incentives and organizational mortality. Organ Sci 12(2):136–160CrossRefGoogle Scholar
  35. Shane S (1998) Making new franchise systems work. Strategic Management Journal 19(7):697–707Google Scholar
  36. Shane S (2003) A general theory of entrepreneurship: the individual-opportunity nexus. Edward Elgar, Northhampton, MAGoogle Scholar
  37. Shane SA, Foo MD (1999) New firm survival: institutional explanations for new franchisor mortality. Manag Sci 45(2):142–159CrossRefGoogle Scholar
  38. Shane SA, Spell C (1998) Factors for new franchise success. Sloan Manag Rev 39(3):43–50Google Scholar
  39. Spanish Association for Franchisors (1992–2004) Franchise Annuals of the Spanish Association for Franchisors. Asociación Española de Franquiciadores (AEF)Google Scholar
  40. Spencer E (2008) Conditions for effective disclosure in the regulation of franchising. Int Rev Appl Econ 22(4):509–525CrossRefGoogle Scholar
  41. Stadfeld LS (1992) Comment on proposed US franchise legislation: a search for balance. Commer Law J 97(4):540–566Google Scholar
  42. Stanworth J, Purdy D, English W, Willems J (2001) Unravelling the evidence on franchise system survivability. Enterp Innov Manag Stud 2(1):49–64CrossRefGoogle Scholar
  43. Stanworth JD, Purdy W, Price S, Zafiris N (1998) Franchise versus conventional small business failures rates in the US and UK: more similarities than differences. Int Small Bus J 16(3):56–69CrossRefGoogle Scholar
  44. Terry A (2003) Franchise sector regulation: the Australian experience. EMNet conference on economics and management of franchising networks. Vienna 26–28 JuneGoogle Scholar
  45. Tormo & Asociados (1995–2004) Franchise Annuals of Tormo & Associates. Tormo & AsociadosGoogle Scholar
  46. Tuunanen M, Torikka J (2008) Franchisee discontinuance and failure empirical findings from Finland. Strategy Governance Netw 2(3):223–243CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  • Victoria Bordonaba-Juste
  • Laura Lucia-Palacios
    • 1
  • Yolanda Polo-Redondo
  1. 1.Marketing DepartmentUniversity of ZaragozaHuescaSpain

Personalised recommendations