Organizational Incentives and Organizational Mortality

Despite a long tradition of research on organizational mortality, organizational theorists have not examined the effect of incentive contracting on firm survival. This paper fills this gap by examining the effect of incentive contracting on the survival of U.S. business format franchise systems over the period 1984-1996. The paper finds empirical support for several hypotheses derived from efficient contracting theory. In general, large firms that adopt policies which screen agents, signal quality, and control agents' free-riding are more likely to survive than large firms which do not adopt these policies.