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Financial Constraints and Moral Hazard: The Case of Franchising

Ying Fan (), Kai-Uwe Kühn and Francine Lafontaine ()

No 9728, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Financial constraints are an important impediment to the growth of small businesses. We study theoretically and empirically how the financial constraints of agents affect their decisions to exert effort, and, hence 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 a region delays chains' entry into franchising by 0.28 years on average, 9 percent of the average waiting time, and slows their growth by around 10 percent, leading to a 10 percent reduction in franchised chain employment.

Keywords: collateralizable housing wealth; Contracting; empirical; entry; financial constraints; growth; incentives; principal-agent (search for similar items in EconPapers)
JEL-codes: D22 D82 L14 L22 L8 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-cta and nep-ind
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Related works:
Journal Article: Financial Constraints and Moral Hazard: The Case of Franchising (2017) Downloads
Working Paper: Financial constraints and moral hazard: The case of franchising (2016) Downloads
Working Paper: Financial Constraints and Moral Hazard: The Case of Franchising (2013) Downloads
Working Paper: Financial constraints and moral hazard: The case of franchising (2013) Downloads
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