Franchising structure changes and shareholder value: Evidence from store buybacks and refranchising

Area of Science:

• Business and Economics
• Marketing
• Finance

Background:

• Franchising firms often engage in strategic decisions like refranchising and buybacks.
• Understanding the impact of these decisions on shareholder value is crucial for investors and management.

Purpose of the Study:

• To investigate the effects of refranchising and buybacks on shareholder value (stock returns).
• To evaluate how firm-specific and industry factors moderate these effects.

Main Methods:

• Utilized an event study analysis methodology.
• Examined data spanning the years 2001-2020.

Main Results:

• Both refranchising and buybacks positively influence stock returns.
• Refranchising benefits firms with lower royalty rates, lower ROA, and higher trade credit.
• Buybacks benefit firms with higher royalty rates.
• Investors react less favorably to refranchising in munificent industries, but more favorably to buybacks.

Conclusions:

• Refranchising and buybacks are valuable strategies for enhancing shareholder value in franchising.
• The effectiveness of these strategies is contingent on firm financial characteristics and industry conditions.
• Findings offer insights for franchising theory and retail marketing practices.