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Financial constraints and moral hazard: The case of franchising

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

No 223, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: 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.

Keywords: contracting; incentives; principal-agent; empirical; collateralizable housing wealth; entry; growth (search for similar items in EconPapers)
JEL-codes: D22 D82 L14 L22 L8 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-cta and nep-ind
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https://www.econstor.eu/bitstream/10419/142250/1/862159342.pdf (application/pdf)

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 (2013) 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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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:223

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