Financial Constraints and Franchising Decisions
We study how the financial constraints of agents affect the behavior of principals in the context of franchising. We develop an empirical model of franchising starting with a principal-agent framework that emphasizes the role of franchisees' collateral from an incentive perspective. We estimate the determinants of chains' entry (into franchising) and growth decisions using data on franchised chains and data on local macroeconomic conditions. In particular, we use collateralizable housing wealth at the state level as an inverse measure of the average financial constraints of potential franchisees. We find that a decrease in collateralizable housing wealth in the local economy leads to both later entry into franchising by local franchisors, and slower growth in the number of franchised -- and total -- outlets in these chains. We show that the corresponding job losses can be substantial.
|Date of creation:||2013|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 229-265.
- Pierre Dubois, 1999.
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99-30, Centre de Recherche en Economie et Statistique.
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- Bonnet, Céline & Dubois, Pierre, 2009.
"Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance,"
TSE Working Papers
09-040, Toulouse School of Economics (TSE).
- Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.
- Bonnet, Céline & Dubois, Pierre, 2008. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Non Linear Pricing and Resale Price Maintenance," IDEI Working Papers 519, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2008.
- Bonnet, Céline & Dubois, Pierre, 2009. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance," IDEI Working Papers 583, Institut d'Économie Industrielle (IDEI), Toulouse.
- Bonnet, Céline & Dubois, Pierre, 2008. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Non Linear Pricing and Resale Price Maintenance," CEPR Discussion Papers 6918, C.E.P.R. Discussion Papers.
- Crawford, Gregory S & Yurukoglu, Ali, 2011.
"The Welfare Effects of Bundling in Multichannel Television Markets,"
CEPR Discussion Papers
8370, C.E.P.R. Discussion Papers.
- Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
- Gonzalez-Diaz, Manuel & Solis-Rodriguez, Vanesa, 2012. "Why do entrepreneurs use franchising as a financial tool? An agency explanation," Journal of Business Venturing, Elsevier, vol. 27(3), pages 325-341.
- Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
- Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
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