Financial Constraints and Moral Hazard: The Case of Franchising

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4474

Classification and Topics

• Classification: Wirtschaft ; Transactional Relationships; Contracts and Reputation; Networks ; Firm Organization and Market Structure ; Firm Behavior: Empirical Analysis ; Asymmetric and Private Information; Mechanism Design ; Industry Studies: Services: General
• Subject: contracting ; incentives ; principal-agent ; empirical ; collateralizable housing wealth ; entry ; growth

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fan, Ying ; Kühn, Kai-Uwe ; Lafontaine, Francine
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/89687
• Last update: 10.03.2025, 11:45 AM CET