Contractual Complexity and Completeness to Contain Opportunism in Franchise Agreements
Abstract: This paper sets out to analyze contractual complexity and completeness in the context of Spanish franchise chains. First we examine whether franchise chains differ according to the complexity and completeness of their contracts, and then we analyze the factors that influence the degree of complexity of those contracts. For that purpose, 64 contracts held by different franchise chains operating in Spain have been taken as a sample. The results indicate, on the one hand, that there are two kinds of contracts in terms of their degree of complexity and, on the other hand, that i) the larger the relationship-specific investments, ii) the broader the experience of the chain in the market, and iii) the more important the effort of the person in charge of the outlet is to the success of the business, the more complex the contracts drawn up by the franchisors will be. The franchisor’s reputation, however, does not appear to influence the degree of detail with which the contract is drawn up.
