The Iowa Stater
September1996
Franchisers not smiling
owa, you make me smile." Some franchise companies would disagree,
according to Frederick Dark, associate professor of finance.Iowa's 1992 franchise law was the most restrictive in U.S. history. The law restricted franchisers say in when franchises were transferred to other owners and in how close franchises could be to each other. The law caused many parent companies, such as McDonald's, to stop issuing franchises in Iowa.
"It is clear that some franchisees benefit from the passage of laws like Iowa's," Dark said. "But some adamantly oppose it."
Those hurt by the law include owners of multiple stores, who were
unable to continue expanding because parent companies had stopped
franchising, and entrepreneurs looking for a franchising opportunity,
but denied because new franchises were held by parent companies,
not individuals.
Dark, who studied 32 franchise companies in California, a state with franchise laws similar to Iowa's, found that franchisees and franchisers arent the only ones pinched by strict franchise laws. Dark and co-researchers James Brickley, University of Rochester, and Michael Weisbach, University of Arizona, found that stockholders of 32 franchise firms, on average, suffered more than a 6 percent loss in stock value following the passage of the California law.
Some of the Iowa laws restrictions were eased by the Legislature in 1995 to entice franchise companies back to the state. However, many companies still are unhappy with the situation and have delayed or canceled plans to franchise here.
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