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

Australian Business Law Review, Vol. 36, pp. 407-431, 2008

UNSW Australian School of Business Research Paper No. 1348548

25 Pages Posted: 7 May 2009 Last revised: 18 Jun 2009

See all articles by Jenny Buchan

Jenny Buchan

UNSW Australia Business School, School of Taxation and Business Law; University of New South Wales

Date Written: December 1, 2008

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.

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

Suggested Citation

Buchan, Jennifer M., Ex Ante Information and Ex Post Reality for Franchisees: The Case of Franchisor Failure (December 1, 2008). Australian Business Law Review, Vol. 36, pp. 407-431, 2008; UNSW Australian School of Business Research Paper No. 1348548. Available at SSRN: https://ssrn.com/abstract=1348548

Jennifer M. Buchan (Contact Author)

UNSW Australia Business School, School of Taxation and Business Law ( email )

Room 2041
QUAD Building
Sydney, New South Wales
Australia
+61293851458 (Phone)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/JennyBuchan.aspx

University of New South Wales ( email )

Level 2, Quadrangle Building
Australian School of Business
Sydney, NSW 2052
Australia
+61 2 93851458 (Phone)

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