Post by Sugato Bhattacharyya on Jun 27, 2011 5:57:01 GMT 4
The Role of Risk in Franchising
Sugato Bhattacharyya
University of Michigan - Stephen M. Ross School of Business
Francine Lafontaine
University of Michigan - Stephen M. Ross School of Business
JOURNAL OF CORPORATE FINANCE
Abstract:
The empirical literature on franchising suggests that the proportion of risk borne by franchisees increases as the amount of risk to be shared goes up. This has been interpreted by some as evidence that franchisers use franchising as a way to "shed" risk. This paper argues against this conclusion. First we show that the evidence is weak given the problems associated with measuring risk in franchising. Second, we show how a model emphasizing incentive issues and informational problems can give rise to the patterns found in the data. We conclude that risk shedding need not be invoked to explain franchising.
papers.ssrn.com/sol3/papers.cfm?abstract_id=6290
Sugato Bhattacharyya
University of Michigan - Stephen M. Ross School of Business
Francine Lafontaine
University of Michigan - Stephen M. Ross School of Business
JOURNAL OF CORPORATE FINANCE
Abstract:
The empirical literature on franchising suggests that the proportion of risk borne by franchisees increases as the amount of risk to be shared goes up. This has been interpreted by some as evidence that franchisers use franchising as a way to "shed" risk. This paper argues against this conclusion. First we show that the evidence is weak given the problems associated with measuring risk in franchising. Second, we show how a model emphasizing incentive issues and informational problems can give rise to the patterns found in the data. We conclude that risk shedding need not be invoked to explain franchising.
papers.ssrn.com/sol3/papers.cfm?abstract_id=6290