Ongoing Variable Payments in Portuguese and Spanish Franchise Systems

21 Pages Posted: 25 Jun 2010

See all articles by Luis Vázquez

Luis Vázquez

Universidad de Salamanca

Ana Branca Carvalho

Escola Superior de Tecnologia e Gestão de Lamego

Date Written: June 25, 2010

Abstract

This article provides evidence on the determinants of the ongoing variable payments used in Portuguese and Spanish franchise systems. Consistent with the Two-Sided Moral Hazard Model, the ongoing variable payments decrease as the costs of monitoring franchisees’ efforts rise. The results also show that the higher the franchisors' inputs, the higher the ongoing variable payments. The findings are also consistent with the Property Rights Theory: the ongoing variable payments to provide the necessary incentives for the franchisor increase as the franchisor's system-specific investments rise, and the more important the franchisee's intangible investments, the lower the ongoing variable payments to provide the incentive for the franchisees.

Keywords: Franchising, Ongoing Variable Payments, Royalty Rate, Self-Selection

JEL Classification: M21, M10, K12

Suggested Citation

Vázquez, Luis and Carvalho, Ana Branca, Ongoing Variable Payments in Portuguese and Spanish Franchise Systems (June 25, 2010). Available at SSRN: https://ssrn.com/abstract=1630425 or http://dx.doi.org/10.2139/ssrn.1630425

Luis Vázquez

Universidad de Salamanca ( email )

Campus Miguel de Unamuno
37008 Salamanca, Salamanca 23007
Spain
+34 923 294 640 Ext. 3174 (Phone)
+34 923 294 715 (Fax)

Ana Branca Carvalho (Contact Author)

Escola Superior de Tecnologia e Gestão de Lamego ( email )

Escola Superior de Tecnologia e Gestão
Campus Politécnico de Repeses
Viseu, 3504-510
Portugal

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