New Firm Survival: Institutional Explanations for New Franchisor Mortality

Why do some new firms succeed and others fail? Economists argue that new firms fail because entrepreneurs inefficiently manage production and organizational design (Williamson 1985). Sociologists (e.g., Granovetter 1985) have typically viewed this explanation as undersocialized, and argue that institutional legitimacy must also be considered to explain the survival of new firms. This paper examines the survival of 1292 new franchisors established in the United States from 1979–1996. The results show that institutional legitimacy adds to economic explanations for the survival of new franchisors and suggests the importance of a properly socialized explanation.