publication . Preprint . 2013

Financial Constraints and Franchising Decisions

Kai-Uwe Kuhn; Francine Lafontaine; Ying Fan;
Open Access
  • Published: 01 Jan 2013
Abstract
We study how the financial constraints of agents affect the behavior of principals in the context of franchising. We develop an empirical model of franchising starting with a principal-agent framework that emphasizes the role of franchisees' collateral from an incentive perspective. We estimate the determinants of chains' entry (into franchising) and growth decisions using data on franchised chains and data on local macroeconomic conditions. In particular, we use collateralizable housing wealth at the state level as an inverse measure of the average financial constraints of potential franchisees. We find that a decrease in collateralizable housing wealth in the ...
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