Journal of Hospitality Financial Management Journal of Hospitality Financial Management

Abstract

Franchising some and owning other outlets is considered a performance-enhancing strategy relative to owning all outlets. Few studies explored when franchising reduces firm performance, however. We fill this gap by using two moderators: brand diversification and geographic dispersion. Using a sample of restaurant firms for the 1997-2012, we find that brand diversification and geographic dispersion moderate the relationship between franchising and firm financial performance through a three-way interaction. In line with our predictions, for firms with high geographic dispersion, the influence of franchising is more negative when combined with high brand diversification. Results were similar for franchising firms with low geographic dispersion and high brand diversification. Overall, findings indicate that franchising is not always performance enhancing. Thus, franchising restaurant firms should exercise some caution prior to executing a multi-branding strategy.