Ex Ante Information and Ex Post Reality for Franchisees: The Case of Franchisor Failure

Abstract:     
Ex ante, the franchisee is provided with a significant amount of information; about the franchisor, the risks of becoming a small business person and what is expected of franchisees in the network. The scope of the franchisee's precontract due diligence is framed by the contents of the franchise disclosure document, the franchise agreement, any claims made by the franchisor, material provided by the franchise regulators, the Australian Competition and Consumer Commission and by the professional and personal experience of the franchisee's advisers. It is constrained by the franchisee's budget. Significant and numerous asymmetries exist ex ante between the franchisor's position and the franchisee's information. These asymmetries are brought into stark relief if the franchisor is placed into administration or becomes insolvent. This article examines information available to the franchisee ex ante about the possibility of the franchisor failing.

Number of Pages in PDF File: 25

Keywords: franchisor, franchsiee, ex ante, asymmetry, risk, small business, information, pre contract, due diligence, franchsie agreement, disclosure, franchisor failure, Australia, regualtor

JEL Classification: D00, D82, E61, K00, K29, L13, M55

Accepted Paper Series