Predictors of bankruptcy risk of food franchising companies in the Philippines

Franchising has revolutionized the way businesses expand. However, only a handful of studies examine the risk of bankruptcy of franchising companies. In fact, seeing financial performance measures being incorporated in previous research about franchising in uncommon. Data of 45 subject companies were gathered and analyzed using Altman’s Z”-score in determining the bankruptcy risk. Panel regression was performed and the fixed effects model yielded three significant predictors namely: age, franchise fee turnover, and size. The results indicate that firm size has a strong and positive effect on the Z”- scores. Meanwhile, age and franchise fee turnover exhibit negative effects on the Z”- scores. This implies that bigger franchising companies do not face as much risk of bankruptcy as that of smaller franchising companies. Moreover, older firms and those with high franchise fee turnover are at risk of incurring financial distress. Key informant interviews were performed by interviewing local food franchise companies in order to provide a local context of the results. It is recommended that firms constantly innovate over time in order to be adept with the ever-changing customer demands. Firms with higher franchise fee turnover should efficiently manage the franchise fees in generating sales to avoid bankruptcy risk.