Current explanations for franchising assume that managers only pay attention to firm-specific economic factors. In contrast, the authors submit that social factors described by institutional theory will enhance understanding. Using a sample of 1,300 franchisors active during 1980 through 2000, the authors find evidence that both environmental and internal institutional pressures influence firms’ propensity to franchise, but that responsiveness to internal institutional pressures declines as economic reasons to franchise increase. Overall, social factors appear to actively influence franchising, but their impact is muted by economic factors. The results also suggest that perhaps franchising is itself becoming an institutionalized norm. For researchers, institutional theory promises to be a fruitful avenue for increasing understanding about franchising. For franchisors, results highlight the value of systematic analysis of franchising decisions.
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