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This paper aims to identify the interrelationships of institutional factors that compose an entrepreneurial ecosystem (EE) in small towns that can potentially increase the attraction of franchises.

The authors analyzed 728 small towns with franchise chains that do not belong to metropolitan regions and are limited to populations of up to 50,000 inhabitants. Secondary data are obtained from the Brazilian Institute of Geography and Statistics. The data analysis technique used is Poisson regression.

A higher number of employed persons (H1), a higher savings (H2) and a higher number of educational institutions (H4) correlates with more franchise chains in small towns. The availability of institutional support (H3) does not correlate with the number of franchise chains. Regarding the interrelationships between factors, the interactive effect between two constructs is determined to cause a decrease in franchise chains, whereas interrelating three factors raises the number of franchise chains (R² = 72.3%).

The analysis identifies some environmental factors to be considered in market prospecting by franchise chains’ expansion managers. These factors constitute a relevant analytical model focused on the regional development of franchise chains.

Social contributions are directed to public policy professionals responsible for regional economic development, as emerging markets demand actions to encourage job creation when confronted with high unemployment rates and dependence on the informal economy.

The contribution of this paper is bringing EE to the debate of the institutional environment’s impact on new businesses. EE adds to the debate examining the interrelationships between different institutional factors. An EE not only identifies the factors, but also examines the interdependence of these factors, which can potentially explain the attraction of franchise chains in small towns.