Post by James A Brickley on Jun 23, 2011 8:56:56 GMT 4
Contract Duration: Evidence from Franchise Contracts
James A. Brickley
University of Rochester - Simon Graduate School of Business
Sanjog Misra
University of Rochester - Simon Graduate School of Business
R. Lawrence Van Horn
Owen Graduate School of Management, Vanderbilt University
February 26, 2003
Simon School of Business Working Paper No. FR 03-08
Abstract:
This study provides evidence on the determinants of contract duration using a large sample of franchise contracts. We find that the term of the contract systematically increases with the franchisee's physical and human capital investments, measures of recontracting costs, and the franchisor's experience in franchising (which we argue is negatively related to uncertainty about optimal contract provisions). These results are consistent with the hypothesis that the optimal contract duration involves a tradeoff between protecting the parties against potential hold-up of relationship-specific investment and reducing the flexibility that the parties have to respond to environmental changes.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID383700_code030305590.pdf?abstractid=383700&mirid=2
James A. Brickley
University of Rochester - Simon Graduate School of Business
Sanjog Misra
University of Rochester - Simon Graduate School of Business
R. Lawrence Van Horn
Owen Graduate School of Management, Vanderbilt University
February 26, 2003
Simon School of Business Working Paper No. FR 03-08
Abstract:
This study provides evidence on the determinants of contract duration using a large sample of franchise contracts. We find that the term of the contract systematically increases with the franchisee's physical and human capital investments, measures of recontracting costs, and the franchisor's experience in franchising (which we argue is negatively related to uncertainty about optimal contract provisions). These results are consistent with the hypothesis that the optimal contract duration involves a tradeoff between protecting the parties against potential hold-up of relationship-specific investment and reducing the flexibility that the parties have to respond to environmental changes.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID383700_code030305590.pdf?abstractid=383700&mirid=2