Giorgo Sertsios2026-03-222026-03-22201310.1093/jleo/ewt014https://doi.org/10.1093/jleo/ewt014https://andeanlibrary.org/handle/123456789/48986Citaciones: 9This article studies whether producers’ up-front investments can help sustain relations with business partners. The initial investment combined with the business partner’s threat to terminate the contract before it expires can generate a bonding mechanism that precludes the producer from behaving opportunistically. I test this view using franchise contract data and a natural experiment. In practice, the franchisor (business partner) determines how much a franchisee (producer) needs to invest up-front. I show that franchisors affected by the passing of a law that restricts their ability to terminate misbehaving franchisees ask their franchisees for higher up-front investments. This result is particularly large for small franchise systems, as franchisees’ investments are less redeployable in case of contract termination. The data suggest that contractual up-front investments can be used to sustain business relations (JEL L14, K20, M21).enFranchiseBusinessFront (military)Investment (military)Industrial organizationBusiness relationsMarketingCommercearticle