Overestimation and Venture Survival: An Empirical Analysis of Development Commitments in International Master Franchising Ventures

Arturs Kalnins

Journal of Economics & Management Strategy, 2005, vol. 14, issue 4, 933-953

Abstract: Many international master franchising contracts include “development commitments,” clauses specifying a number of units that master franchisees must develop in exchange for exclusive rights to an assigned market, typically their entire home nation. I analyze 142 contracts with development commitments signed by US fast food franchisors and their master franchisees. Several empirical regularities emerge from the analysis: First, the development commitments are large and rarely completely fulfilled. Second, a robust negative relationship exists between survival and development commitment size. Further, ventures with larger commitments exhibit a lower level of investment still productive at the end of the development period. Various explanations for these regularities are considered.

Date: 2005
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https://doi.org/10.1111/j.1530-9134.2005.00088.x

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