– The purpose of this study is to show how franchisor characteristics influence franchisee failure. To achieve this aim, we developed a heuristic model using the methodology and power of predictive analytics.
– The authors use data from the World Franchising Council’s and from the Small Business Administration (SBA). The data cover 271 diverse USA franchise chains that are present in both databases.
– The model predicts potential defaults of SBA-backed loans issued to American franchisees, and the authors identify 13 variables that help explain franchisee failure.
– The authors offer guidance for stakeholder groups – lenders, franchisors and franchisees – to minimize the risk of lending and business failure.
– The paper contributes to the franchising literature by considering parent firms’ characteristics to predict franchisee failure.
