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The Quality of Institutions and Organizational Form Decisions: Evidence from Within the Firm

Author

Listed:
  • Francine Lafontaine

    (UMich - Université du Michigan = University of Michigan [Ann Arbor])

  • Rozenn Perrigot

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Nathan E. Wilson

    (Federal Trade Commission, Bureau of Economics, Washington, DC)

Abstract

In many retail and service sectors, firms have to establish a physical presence in a geographic market to access customers there. In countries where the quality of institutions is low, this can put assets at risk. We use data on the operations of a multinational, multibrand hotel company to show that in environments where local institutions are weaker—as proxied mainly by the World Bank's Checks index—the company eschews direct ownership. Rather than increasing its reliance on franchising, as predicted by some models, the company relies more on another form of organization commonly used in this industry, namely management contracts. We explain these patterns by emphasizing how the quality of the institutional environment affects the cost of using equity‐based organizational forms, per arguments in the current literature, but also the cost of enforcing the terms of franchise contracts.

Suggested Citation

  • Francine Lafontaine & Rozenn Perrigot & Nathan E. Wilson, 2017. "The Quality of Institutions and Organizational Form Decisions: Evidence from Within the Firm," Post-Print halshs-01615109, HAL.
    • Handle: RePEc:hal:journl:halshs-01615109
    DOI: 10.1111/jems.12185
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    Cited by:

    1. Paltseva, Elena & Toews , Gerhard & Troya-Martinez, Marta, 2022. "I’ll pay you later: Sustaining Relationships under the Threat of Expropriation," SITE Working Paper Series 59, Stockholm School of Economics, Stockholm Institute of Transition Economics.
    2. Yinhao Wu & Changhong Miao & Yehua Dennis Wei & Jianming Miao, 2021. "Investment location dynamics and influencing factors of pollution‐intensive industries in China: A study of chemical firms," Growth and Change, Wiley Blackwell, vol. 52(4), pages 1997-2015, December.
    3. Nicola Gennaioli & Giacomo A. M. Ponzetto, 2015. "Optimally vague contracts and the law," Economics Working Papers 1410, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2017.
    4. Jell-Ojobor, Maria & Hajdini, Ilir & Windsperger, Josef, 2022. "Governance of international franchise networks: Combining value creation and value appropriation perspectives," Journal of Business Research, Elsevier, vol. 139(C), pages 267-279.
    5. Esther Calderón-Monge & Pilar Huerta-Zavala & Jannett Ayup-González, 2019. "Effects of brand-related and market signals on franchisees’ entrepreneurial decisions: a multi-country panel data analysis," International Entrepreneurship and Management Journal, Springer, vol. 15(2), pages 573-588, June.

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