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International Franchise Expansion: The Role of Institutions and Transaction Costs

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  • Hoffman, Richard C.
  • Munemo, Jonathan
  • Watson, Sharon

Abstract

In this study, we examine how a country's institutional environment affects the international expansion activities of U.S. franchise companies. We draw on institutional and transaction cost theories to develop a model and a set of hypotheses regarding the effect of political, regulatory and infrastructural institutions, as well as economic instability, on international franchise expansion. Using a sample of U.S. franchise firms and data from a combination of secondary sources, we test these hypotheses by estimating a panel regression model. Our results demonstrate for the first time that, in addition to favorable political governance, a country's business climate, including entry regulations, taxes, and communications infrastructure, is an important predictor of foreign franchise firms' expansion into that country. Implications for practice and future research also are discussed.

Suggested Citation

  • Hoffman, Richard C. & Munemo, Jonathan & Watson, Sharon, 2016. "International Franchise Expansion: The Role of Institutions and Transaction Costs," Journal of International Management, Elsevier, vol. 22(2), pages 101-114.
    • Handle: RePEc:eee:intman:v:22:y:2016:i:2:p:101-114
    DOI: 10.1016/j.intman.2016.01.003
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