How Do Franchise Contracts Evolve? A Study of Three German SMEs*

Although contracts are crucial for franchisors in managing relationships with franchisees, franchising research has not adequately investigated whether and how franchisors learn about effective contracts. This paper explores the evolution of formal contracts used by three German chains from the restaurant, hotel, and retailing industries. We describe the nature of learning involved in designing contracts in the sampled chains, and suggest reasons why contracts change over time. Despite the fact that drafting contracts with independent entrepreneurs is one of the important tasks the franchisor is rewarded for, we found that franchisors remain boundedly rational and therefore are unable to completely anticipate undesirable franchisee behavior and to incorporate suitable safeguards. We develop propositions to suggest that: (1) learning explains contract design capability better than does foresight, (2) a new management and the pursuit of uniformity lead to contract changes, and (3) the presence of an active franchisee council promotes the efficiency of the contract change process. We offer implications of our findings for theory, practice, and research.     

On the generalized principal-agent problem: Decomposition and existence results

This paper addresses the class of generalized agency problems: situations in which adverse selection and moral hazard are jointly present. We present a decomposition of the principal's optimization problem under the first-order approach that sheds light on the interactions between the two types of private information, and also significantly improves tractability. We use the decomposition to (1) provide examples of closed form solutions of the optimal contract, and (2) analyze the existence of optimal contracts. We also show that the first-order approach is valid in generalized agency problems if the production technology satisfies the linear distribution function condition (LDFC) in actions and types. For more general production technologies the Mirrlees-Rogerson sufficient conditions need to be extended to include restrictions on the form of the optimal contract. Received: 11 August 1997 / 26 September 1999     

The Determinants of Stock Prices: New Evidence from the Indian Banking Sector

We examine the determinants of stock prices for major Indian banks using panel data modeling techniques. Our work is novel because, for the first time in the literature on Indian banking, we use a panel Granger causality test that reveals the direction and sign of causality. We find evidence of panel cointegration among stock prices, economic activity, interest rates, and exchange rates for thirteen banks. Our results suggest that while economic activity and currency depreciation contribute to a rise in share prices, an increase in the interest rate reduces bank share prices. Moreover, only economic activity Granger-causes stock prices in the long run.     

Impediments to Adoption of Green Products: An ISM Analysis

During the last decades of the twentieth century, industry and business leaders have recognized the importance of incorporating environmental sustainability in their business practices. This has resulted in emergence of new concepts such as green marketing and green consumerism. Over the years, various studies have explored the concept of green consumer behavior and have listed out factors that work as either barriers or enablers to consumer adoption of environmentally sustainable products. The present study identifies such barriers from the available body of literature and tries to construct a model using ISM (Interpretive Structural Modeling) to show how these different barriers interact and affect the consumer decision making regarding green products.     

Are joint ventures positive sum games? The relative effects of cooperative and noncooperative behavior

Are joint ventures (JVs) characterized mainly by cooperative behavior or noncooperative behavior? In this research, we address this question by examining the interrelationship between the values created for two partners when they announce a JV. We argue that, on average, if cooperative behavior and common benefits are more influential than noncooperative behavior and private benefits, there will be a positive association between the values created for the two partners. Conversely, if private benefits and noncooperative behavior are more influential, there will be a negative association as partners derive value at the expense of each other rather than by creating new opportunities through the JV. Using a sample of 344 JVs we find evidence of a positive association between the values created for the two partners after controlling for various factors. This suggests that the stock market perceives JVs to be positive sum games rather than zero sum games, and that value creation in JVs is mainly attributable to synergies rather than appropriation of resources. Our analysis also reveals other conditions under which cooperative behavior and noncooperative behavior become dominant, such as the strength of the resources of the two partners, product market competition, and JV experience. Copyright © 2010 John Wiley & Sons, Ltd.     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

Brand vulnerability to product assortments and prices

Abstract

The assortment of brands that a specific brand competes against varies from one point of sale to another. The competitive landscape changes further because of within-assortment price variations at each location. The joint variation in assortment composition and pricing creates a complex set of scenarios under which a brand needs to compete. In this paper, we develop an approach to assess changes in a brand's vulnerability under alternative assortment and price configurations. We specifically propose that, in market environments with high variability in the competitive set and prices, it is more appropriate to assess a brand's strength relative to alternative assortment configurations rather than against individual competing brands. We build a model that depicts a brand's vulnerability in latent assortment space rather than the traditional brand space. The results from an illustrative model application are used to draw inferences about changes in brand vulnerabilities under shallow and deep promotions.     

Store format choice in an evolving market: role of affect,cognition and involvement

Store choice has been studied extensively in the literature, but store format choice has had limited research attention. The store format choice for bulk grocery purchase being a rational context is well conceptualized in the Theory of Planned Behavior (TPB) framework. Attitude behaviour linkages are well explored but there is rare consensus on the components of attitude, their interrelationship and resultant impact on conation. The Theory of Reasoned Action has evolved over time to incorporate perceived behavioral control and past behavior to improve its explanatory capability as TPB; however, it has maintained its unidimensionalist approach and has not tested affect and cognition independently for its impact on behavior. This paper explores a Converging framework of the Affect and Cognition components of attitude and tests their independent impact on store format choice behaviour. The results indicate that Affect operates independently and has stronger impact on format choice especially in more evolved and familiarized contexts whereas cognitive evaluation is strong in relatively newer formats. There seems to be an interplay between Cognition and Affect over time with cognition transitioning into affect as familiarity with choices increases.     

Quantile price convergence and spillover effects among Bitcoin,Fintech, and artificial intelligence stocks

This research explores the distributional and directional predictabilities among Fintech, Bitcoin, and artificial intelligence stocks from March 2018 to January 2021 using nonparametric causality-in-quantile and crossquantilogram approaches. We also examine connectedness across the assets using a quantile VAR approach. The results indicate the existence of bidirectional causality-in-variance between the variables in a normal market. We also find that directional predictability among the assets is oscillatory over time lags. Finally, we observe a strong price connectedness for highly positive and negative changes. These results further document the diversification potential and safe-haven properties of technology-related assets for portfolio investors.     

Is Financial Flexibility a Priced Factor in the Stock Market?

This paper develops a factor analysis–based measure for shifts in corporate financial flexibility (FFLEX) that can be observed from public accounting information. Companies that experience positive shifts in FFLEX are associated with higher future investment growth opportunities. We show that FFLEX is a robust determinant of future stock returns. Firms that have increased their financial flexibility are associated with lower stock returns in the subsequent period. A zero‐cost return portfolio produces a significant positive monthly premium of 0.69%, which is driven by covariance (risk). Risk inherent in the flexibility factor is not explained away by either prominent pricing characteristics or factors.