Overestimation and Venture Survival: An Empirical Analysis of Development Commitments in International Master Franchising Ventures
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Many international master franchising contracts include "development commitments," clauses specifying a number of units that master franchisees must develop in exchange for exclusive rights to an assigned market, typically their entire home nation. I analyze 142 contracts with development commitments signed by US fast food franchisors and their master franchisees. Several empirical regularities emerge from the analysis: First, the development commitments are large and rarely completely fulfilled. Second, a robust negative relationship exists between survival and development commitment size. Further, ventures with larger commitments exhibit a lower level of investment still productive at the end of the development period. Various explanations for these regularities are considered.
Business: Hospitality Administration and Management: Food and Beverage Management
Required Publisher Statement: © Wiley. Final version published as: Kalnins, A. (2005). Overestimation and venture survival: An empirical analysis of development commitments in international master franchising ventures. Journal of Economics & Management Strategy, 14(4), 933-953. doi: 10.1111/j.1530-9134.2005.00088.x Reprinted with permission. All rights reserved.