Purpose The purpose of this study is to examine whether variation in franchising across US states can be explained by differences in state regulatory burdens. Design/methodology/approach Three years of US state-level panel data is used on measures of franchising activity published by the International Franchise Association. The authors measured variation in regulatory burdens across state governments using the regulatory freedom index, developed by the Cato Institute. Multiple regression analysis was the statistical technique used. Findings Controlling for state-level per capita personal income, educational attainment, unemployment and share of population identifying as non-white, the authors find states with fewer regulatory burdens for business owners have more franchises and franchise jobs per 100,000 residents, higher franchise output per capita and a larger share of small businesses are franchises. These results were robust to alternative econometric specifications. The results support our hypothesis that states with lower regulatory burdens will have more franchising activity. Research limitations/implications Only three years of data are currently available; however, our research provides some practical avenues for managers and policy makers to explore when considering new franchise opportunities or developing policies that impact regulatory burdens for small businesses. Originality/value This study contributes to the literature by providing supporting evidence for the relationship between US state institutional factors and franchised small businesses, and it adds a cross-state study to the existing literature using cross-country and cross-city data.