Financial Constraints and Moral Hazard: The Case of Franchising

Fan, Ying, Kuhn, Kai-Uwe and Lafontaine, Francine (2017) Financial Constraints and Moral Hazard: The Case of Franchising. Journal of Political Economy, 125 (6). pp. 2082-2125. ISSN 1537-534X

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      Financial constraints are considered an important impediment to growth for small businesses. We study theoretically and empirically the relationship between the financial constraints of agents and the organizational decisions and growth of principals, in the context of franchising. We find that a 30 percent decrease in average collateralizable housing wealth in an area is associated with a delay in chains’ entry into franchising by 0.33 years on average, or 10 percent of the average waiting time, and a reduction in chain growth and hence a reduction in franchised chain employment of about 9 percent.

      Item Type: Article
      Uncontrolled Keywords: contracting,incentives,principal-agent,empirical,collateralizable housing wealth,entry,growth
      Faculty \ School: Faculty of Social Sciences > School of Economics
      Depositing User: Pure Connector
      Date Deposited: 08 Dec 2016 00:06
      Last Modified: 06 May 2019 00:50
      DOI: 10.1086/694566

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