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An empirical analysis of self-enforcement mechanisms: evidence from hotel franchising

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Title: An empirical analysis of self-enforcement mechanisms: evidence from hotel franchising
Authors: Kosova, R
Sertsios, G
Item Type: Journal Article
Abstract: The relational contracts literature suggests that a principal can improve contract self-enforceability by specifying initial requirements that increase the agent’s ex-post rents. Initial requirements specified in hotel franchise agreements — size and quality-tier of hotel — offer a unique empirical setting to test this. Using proprietary data on 5,547 new franchised hotels and their revenues, we find that hotels far away from their franchisor’s headquarters are larger, more likely to belong to a high-quality tier, and generate higher revenues ex-post. This supports the idea that the agent’s ex-post rents can serve as a substitute to the principal’s monitoring intensity in the mitigation of agency problems. Our findings shed light on how formal contract terms can influence informal (relational) contracts between business partners.
Issue Date: 31-Jan-2018
Date of Acceptance: 9-May-2016
URI: http://hdl.handle.net/10044/1/32335
DOI: https://dx.doi.org/10.1287/mnsc.2016.2563
ISSN: 1526-5501
Publisher: INFORMS (Institute for Operations Research and Management Sciences)
Start Page: 43
End Page: 63
Journal / Book Title: Management Science
Volume: 64
Issue: 1
Copyright Statement: © 2016 INFORMS
Keywords: 08 Information And Computing Sciences
15 Commerce, Management, Tourism And Services
Operations Research
Publication Status: Published
Appears in Collections:Imperial College Business School