The Effect of Contract Regulation on Franchising

Previous work on the regulation of termination clauses in franchise contracts has ignored the ability of parties to contract around state law. Using data on two national fast-food restaurants, we find that Washington, D.C.'s termination restriction which did not restrict choice-of-law provisions had little systematic effect on business practice, while Iowa's termination restriction which did prohibit choice-of-law provisions had a large negative effect on franchising. (JEL: D86, K12, K20, L14)