Effect of Franchised Business models on Fast Food Company Stock Prices in Recession and Recovery with Weibull Analysis

TL;DR

This study investigates how franchised business models in the fast food industry influence stock prices during recession and recovery periods, revealing that franchised companies may be more vulnerable than previously assumed.

Contribution

It introduces Weibull distribution analysis to examine the impact of franchised business models on stock performance during economic downturns, highlighting complex cash flow dynamics.

Findings

Franchised businesses may experience more severe recession impacts.

Stock recovery in franchised models can be slower than the market.

Layered ownership influences financial resilience during downturns.

Abstract

At the initial stages of this research, the assumption was that the franchised businesses perhaps should not be affected much by recession as there are multiple cash pools available inherent to the franchised business model. However, after analyzing the available data, it indicated otherwise, the stock price performance as discussed indicates a different pattern. The stock price data is analyzed with an unconventional tool, Weibull distribution and observations confirmed the presence of either a reverse trend in franchised business than what is observed for non-franchised or the franchised stock followed large food suppliers. There is a layered ownership and cash flow in a franchised business model. The parent company run by franchiser depends on the performance of child companies run by franchisees. Both parent and child companies are run as independent businesses but only the parent company is listed as a stock ticker in stock exchange. Does this double layer of vertical operation, cash reserve, and cash flow protect them better in recession? The data analyzed in this paper indicates that the recession effect can be more severe; and if it dives with the average market, expect a slower recovery of stock prices in a franchised business model. This paper characterizes the differences and explains the natural experiment with available financial data.