Institutions and Contracts : Franchising

This paper investigates a new dataset of franchise networks in nine countries in order to assess whether and to what extent do institutions influence the practice of franchising. Our regressions relate the structure of franchise networks (the rate of franchised units as opposed to corporate units) to individual parameters supposed to reflect the extent of moral hazards on the franchisor's and franchisee's sides and, more specifically, to various institutional parameters of the franchisor's country, namely, the legal tradition, the level of procedural formalism, the constraints imposed by labour regulation and the effectiveness of trademark protection. While agency theory parameters seem to perform rather badly in this international setting, institutions such as trademark protection and labour regulation have more explanatory power: greater trademark protection encourages franchising and the impact of labour regulation is mostly positive, depending on the type of labour regulation that is being considered. The effect of legal tradition and formalism seems negligible once these parameters are taken in