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Entrepreneurial signaling to attract resources: the case of franchising

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  • Steven C. Michael

    (College of Business, University of Illinois Urbana Champaign, Champaign, IL, USA)

Abstract

Why firms and individuals reveal information is the subject of considerable theoretical research, but little empirical work has been possible due to a lack of suitable data. In this paper we examine why entrepreneurs selling business opportunities (franchisors) reveal information regarding potential profits (termed earnings claims). Empirical analysis shows that: first, contrary to theory, only a small percentage of franchisors claim; and, second, the franchisors that do claim have lower costs or are responding to competition. In particular, the prediction of theoretical models from economics that resource providers will not transact if information is not disclosed is not supported; resource providers can and do make significant investments even when entrepreneurs refuse to disclose information. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Steven C. Michael, 2009. "Entrepreneurial signaling to attract resources: the case of franchising," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 405-422.
    • Handle: RePEc:wly:mgtdec:v:30:y:2009:i:6:p:405-422
    DOI: 10.1002/mde.1460
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    Cited by:

    1. Dominique Bonet Fernandez & Odile Chanut & François Fulconis & Carole Poirel & Gilles Paché, 2014. "La réactivité des réseaux de franchise face aux chocs externes : proposition d’un modèle conceptuel," Working Papers 2014-163, Department of Research, Ipag Business School.
    2. Dominique Bonet Fernandez & Odile Chanut & François Fulconis & Gilles Paché & Carole Poirel & Carolina Serrano-Archimi, 2010. "Capacité de réactivité des réseaux de franchise en contexte de crise. Rapport réalisé par pour le compte de la Fédération Française de la Franchise," Working Papers hal-01742083, HAL.
    3. Dubey, Vivek K. & Matthes, Joseph M. & Saini, Amit, 2023. "Impact of socioeconomic values collaboration on performance in franchising," Journal of Business Research, Elsevier, vol. 162(C).
    4. Zhang Daru & Li Yaokuang & Wu Juan & Long Dan, 2019. "Online or Not? What Factors Affect Equity Crowdfunding Platforms to Launch Projects Online in the Pre-Investment Stage?," Entrepreneurship Research Journal, De Gruyter, vol. 9(2), pages 1-16, April.
    5. Gonzalez-Diaz, Manuel & Solis-Rodriguez, Vanesa, 2012. "Why do entrepreneurs use franchising as a financial tool? An agency explanation," Journal of Business Venturing, Elsevier, vol. 27(3), pages 325-341.
    6. Norazman Saharum & Ahmad Rahman Songip & Nurul Fadly Habidin & Mas Bambang Baroto, 2017. "A Review of Evolutionary Theories in Sustainability related to the Franchise System," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(4), pages 756-771, April.
    7. Chang, Eunmi & Chin, Hyun, 2018. "Signaling or experiencing: Commitment HRM effects on recruitment and employees' online ratings," Journal of Business Research, Elsevier, vol. 84(C), pages 175-185.
    8. Lanchimba, Cintya & Welsh, Dianne H.B. & Fadairo, Muriel & Silva, Vivian-Lara D.S., 2021. "The impact of franchisor signaling on entrepreneurship in emerging markets," Journal of Business Research, Elsevier, vol. 131(C), pages 337-348.
    9. Ivan Kotliarov, 2011. "Royalty Rate Structure in Case of Franchising," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 139-156, May.
    10. Farhad Sadeh & Manish Kacker, 2018. "Quality signaling through ex-ante voluntary information disclosure in entrepreneurial networks: evidence from franchising," Small Business Economics, Springer, vol. 50(4), pages 729-748, April.
    11. Daniel Czaja & Florian Röder, 2022. "Signalling in Initial Coin Offerings: The Key Role of Entrepreneurs’ Self‐efficacy and Media Presence," Abacus, Accounting Foundation, University of Sydney, vol. 58(1), pages 24-61, March.
    12. Jung, Eunjun & Lee, Changjun & Hwang, Junseok, 2022. "Effective strategies to attract crowdfunding investment based on the novelty of business ideas," Technological Forecasting and Social Change, Elsevier, vol. 178(C).
    13. Taj, Saud A., 2016. "Application of signaling theory in management research: Addressing major gaps in theory," European Management Journal, Elsevier, vol. 34(4), pages 338-348.
    14. Vinay Kumar Garg, 2019. "An Examination of the Persistent Effects of Franchising Strategy on Large Chains," Business and Economic Research, Macrothink Institute, vol. 9(1), pages 33-44, March.
    15. Esther Calderón-Monge & Pilar Huerta-Zavala & Jannett Ayup-González, 2019. "Effects of brand-related and market signals on franchisees’ entrepreneurial decisions: a multi-country panel data analysis," International Entrepreneurship and Management Journal, Springer, vol. 15(2), pages 573-588, June.
    16. López-Fernández, Begoña & Perrigot, Rozenn, 2018. "Using Websites to Recruit Franchisee Candidates," Journal of Interactive Marketing, Elsevier, vol. 42(C), pages 80-94.
    17. Gerrit K.C. Ahlers & Douglas Cumming & Christina Günther & Denis Schweizer, 2015. "Signaling in Equity Crowdfunding," Entrepreneurship Theory and Practice, , vol. 39(4), pages 955-980, July.
    18. Maximilian Goethner & Sebastian Luettig & Tobias Regner, 2021. "Crowdinvesting in entrepreneurial projects: disentangling patterns of investor behavior," Small Business Economics, Springer, vol. 57(2), pages 905-926, August.
    19. Leonardo Martin Mastrangelo & Esther Calderon-Monge & Pilar Huerta-Zavala, 2016. "Franchise fairs: A relevant signal in franchise choice in social activity," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 10(3), September.

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