Brighter Prospects? Assessing the Franchise Advantage using Census Data
January 2017
Working Paper Number:
CES-17-21
Abstract
This paper uses Census micro data to examine how starting a business as a franchise rather than an independent business affects its survival and growth prospects. We first consider the factors that influence the business owner's decision about being franchised, and then use different empirical approaches to correct for selection bias in our performance analyses. We find that franchised businesses on average benefit from higher survival rates and faster initial growth relative to independent businesses. However, the effects are not large and, conditional on first-year survival, the differences basically disappear. We briefly discuss potential mechanisms to explain these results. U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Support for this research at the Michigan Census Research Data Center is gratefully acknowledged.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
profitability,
econometric,
macroeconomic,
enterprise,
sale,
growth,
venture,
proprietorship,
entrepreneur,
revenue,
business survival,
franchising,
franchise,
franchisor,
franchised businesses,
franchise establishments,
retail
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Internal Revenue Service,
Longitudinal Business Database,
Chicago Census Research Data Center,
Economic Census,
North American Industry Classification System,
Survey of Business Owners
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'Brighter Prospects? Assessing the Franchise Advantage using Census Data' are listed below in order of similarity.
-
Working PaperSurvival Patterns Among Newcomers to Franchising🔥
January 1997
Working Paper Number:
CES-97-01
This study analyzes survival patterns among franchisee firms and establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.View Full Paper PDF
-
Working PaperSurvival Patterns Among Newcomers To Franchising
May 1997
Working Paper Number:
CES-97-05
This study analyzes survival patterns among franchisee firms adn establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.View Full Paper PDF
-
Working PaperFirms Started As Franchises Have Lower Survival Rates Than Independent Small Business Startups
May 1994
Working Paper Number:
CES-94-03
Aspiring entrepreneurs choosing to become franchisees certainly expect to improve their chances of survival during the turbulent early years of business startup and operation. Alignment with a franchiser parent company offers the franchisee managerial assistance, access to financial capital, and access to markets via the right to utilize the parent company trademark. This study examines survival patterns among franchise and nonfranchise small firms started between 1984 and 1987: survival through late 1991 is tracked for all firms. Although the franchise operations are larger scale, better capitalized young firms, the independent business startups are found to be more profitable and their survival prospects are better than those of franchises.View Full Paper PDF
-
Working PaperAnalysis of Young Neighborhood Firms Serving Urban Minority Clients
May 2008
Working Paper Number:
CES-08-11
This study empirically investigates Michael Porter's hypothesis that urban minority neighborhoods offer attractive opportunities to household-oriented businesses, such as retail firms (1995). Our analysis compares the traits and performance of firms serving predominantly minority clients to those selling their products largely to clients who are nonminority whites. Controlling statistically for applicable firm and owner characteristics, our findings indicate that the minority neighborhood niche does not offer young firms an attractive set of opportunities. Relative to opportunities in the corresponding nonminority household niche and the broader regional marketplace, the neighborhood minority household market is associated with reduced business viability.View Full Paper PDF
-
Working PaperPast Experience and Future Success: New Evidence on Owner Characteristics and Firm Performance
September 2010
Working Paper Number:
CES-10-24
Because the ability of entrepreneurs to start their own businesses is key to the success of the U.S. economy and to the economic mobility of many disadvantaged demographic groups, understanding why entrepreneurship activity varies across groups and geography is an increasingly important issue. As a step in this direction we employ a novel set of metrics of business success to the growing literature and find great variation across groups and metrics. For example, we find that black-owned firms grow slower than white or Asian-owned firms. However, once we condition on firm survival, the differences disappear. Interestingly, we also find differences across groups in their start-up histories. For example, Asian-owned firms are less likely than white-owned firms to have started-out as nonemployers but firms owned by all other minority groups, as well as women-owned firms, are more likely to start-out without employees.View Full Paper PDF
-
Working PaperPreferential Procurement Programs Do Not Necessarily Help Minority-Owned Business
January 1995
Working Paper Number:
CES-95-01
Some minority business enterprises (MBEs) benefit from their participation in government preferential procurement programs and some do not. A subset of minority vendors identified in this study behaves in ways suggesting sensitivity to penalties for violating minority business certification and procurement program regulations. These firms flourish in the absence of fraud penalties. A different group of minority vendors selling to government benefits from an environment in which MBE certification is comprehensive, bonding and working capital assistance are available, and assistance is delivered by a staff dedicated to aiding potential and actual MBE vendors. The preferential procurement program can serve as either a valuable economic development tool for fostering minority business development, or it can promote MBE front companies that pass on their procurement contracts to nonminority firms. Some governments choose to operate the former type of program; others opt for the latter.View Full Paper PDF
-
Working PaperSmall Businesses Do Appear To Benefit From State/Local Government Economic Development Assistance
February 1995
Working Paper Number:
CES-95-02
This study analyzes traits of small businesses that received state/local government aid in such forms as managerial, technical assistance, help in obtaining loans or bonding, and procurement assistance. Over 13 percent of small firms nationwide were found to be involved in selling goods/services to state/local government. Among firms owned by nonminorities, aid recipients tend to be the larger small businesses, but this pattern did not typify minority-owned firms. Among the nonminority businesses, furthermore, those aided by state/local government are more likely than nonassisted firms to remain in operation, even when various form and owner characteristics are controlled for statistically; this pattern did not typify minority-owned firms. State/local government aid flows disproportionately to women- owned businesses and to firm owners who lack managerial experience. No evidence was found indicating targeting of assistance to specific industry groups.View Full Paper PDF
-
Working PaperTHE DYNAMICS OF LATINO-OWNED BUSINESS WITH COMPARISIONS TO OTHER ETHNICITIES
January 2016
Working Paper Number:
CES-16-33
This paper employs the Michigan Census Research Data Center to merge three limited-access Census Bureau data sets by individual firm and establishment level to investigate the factors associated with the Latino-owned Business (LOB) location and dynamics over time. The three main LOB outcomes under analysis are as follows: (1) the probability of a business being Latino-owned as opposed to a business being Asian-owned, Black-owned, or White-owned; (2) the probability of new business entry and exit; and (3) LOB employment growth. This paper then compares these factors associated with LOB with past findings on businesses that are Asian-owned, Black-owned, and White-owned. Some notable findings include: (1) only Black business owners are less associated with using personal savings as start-up capital than Latinos; (2) the only significant coefficient on start-up capital source is personal savings and it increases the odds of survival of a Latino business by 4%; (3) on average, having Puerto Rican ancestry decreases the odds of business survival; and (4) LOB are relatively likely to start a business with a small amount of capital, which, in turn, limits their future growth.View Full Paper PDF
-
Working PaperAn Analysis of Small Business Size and Rate of Discontinuance
January 1990
Working Paper Number:
CES-90-02
This study investigates small business failure rates in relation to several measures of firm size. Utilizing the new Characteristics of Business Owners ( CBO ) data base, a nationwide sample of firms is utilized that is representative of the small business universe. One subset--small business employers--is shown to have relatively low rates of failure, while another group--very small firms with no employees--exhibits relatively high rates of business discontinuance. The finding that the probability of firm failure is strongly (inversely) related to firm size is shown to hold up as well when the age of the business is controlled for.View Full Paper PDF
-
Working PaperTaking the Leap: The Determinants of Entrepreneurs Hiring their First Employee
January 2016
Working Paper Number:
CES-16-48
Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.View Full Paper PDF
