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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)

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    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.

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    File URL: http://hdl.handle.net/10.1002/mde.1460
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 30 (2009)
    Issue (Month): 6 ()
    Pages: 405-422

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    Handle: RePEc:wly:mgtdec:v:30:y:2009:i:6:p:405-422

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    2. Gilbert, Richard J., 1987. "Investment and Coordination in Oligopolistic Industries," Department of Economics, Working Paper Series qt51b0f7sq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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    16. Kaufmann, Patrick J. & Dant, Rajiv P., 1999. "Franchising and the domain of entrepreneurship research," Journal of Business Venturing, Elsevier, vol. 14(1), pages 5-16, January.
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    18. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-33, April.
    19. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
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    Cited by:
    1. 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.

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