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Overestimation and Venture Survival: An Empirical Analysis of Development Commitments in International Master Franchising Ventures
Author(s) -
Kalnins Arturs
Publication year - 2005
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2005.00088.x
Subject(s) - business , investment (military) , new ventures , industrial organization , venture capital , economics , entrepreneurship , marketing , finance , political science , law , politics
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.