New firm survival: Institutional explanations for new franchisor mortality

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