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Trust, transaction costs and contractual incompleteness in franchising

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  • George Hendrikse

    ()

  • Patrick Hippmann

    ()

  • Josef Windsperger

    ()

Abstract

The aim of this study is to address empirically the degree of contractual completeness in franchising by combining transaction cost and relational governance perspectives. First, the ratio of specific and residual decision rights is developed as a measure of contractual completeness. Second, we extend the transaction cost perspective of contractual completeness in franchising by arguing that the franchisor’s and franchisees’ investments have a negative effect on contractual completeness under bilateral dependence and a positive effect under unilateral dependence. Third, we complement the transaction cost perspective by developing new hypotheses regarding the impact of general and knowledge-based trust on contractual completeness. General trust of the franchisor reduces the franchisor’s perception of relational risk and hence the necessity to control the network relationship by more complete contract planning, and knowledge-based trust increases information sharing between the partners and hence the knowledge base for specifying more detailed contracts. The data from the German franchise sector provide some support of the hypotheses. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • George Hendrikse & Patrick Hippmann & Josef Windsperger, 2015. "Trust, transaction costs and contractual incompleteness in franchising," Small Business Economics, Springer, vol. 44(4), pages 867-888, April.
  • Handle: RePEc:kap:sbusec:v:44:y:2015:i:4:p:867-888
    DOI: 10.1007/s11187-014-9626-9
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    1. repec:kap:sbusec:v:50:y:2018:i:4:d:10.1007_s11187-017-9892-4 is not listed on IDEAS
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    More about this item

    Keywords

    Contractual incompleteness; Franchising; Transaction costs; Trust; D23; L24; L26;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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