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Entrepreneurial signaling to attract resources: the case of franchising

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Author Info
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.

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File URL: http://hdl.handle.net/10.1002/mde.1460
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Publisher 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
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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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  1. Janney, Jay J. & Folta, Timothy B., 2006. "Moderating effects of investor experience on the signaling value of private equity placements," Journal of Business Venturing, Elsevier, vol. 21(1), pages 27-44, January. [Downloadable!] (restricted)
  2. Kwoka, John E, Jr, 1979. "The Effect of Market Share Distribution on Industry Performance," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 101-09, February. [Downloadable!] (restricted)
  3. Insuk Cheong & Jeong-Yoo Kim, 2004. "Costly Information Disclosure in Oligopoly," Journal of Industrial Economics, Blackwell Publishing, vol. 52(1), pages 121-132, 03. [Downloadable!] (restricted)
  4. Michael, Steven C. & Moore, Hollie J., 1995. "Returns to franchising," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 133-155, October. [Downloadable!] (restricted)
  5. Janney, Jay J. & Folta, Timothy B., 2003. "Signaling through private equity placements and its impact on the valuation of biotechnology firms," Journal of Business Venturing, Elsevier, vol. 18(3), pages 361-380, May. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Richard J. Gilbert and Marvin Lieberman., 1987. "Investment and Coordination in Oligopolistic Industries," Economics Working Papers 8730, University of California at Berkeley.
    Other versions:
  8. Golan, Amos & Judge, George & Perloff, Jeffrey M, 1996. "Estimating the Size Distribution of Firms Using Government Summary Statistics," Journal of Industrial Economics, Blackwell Publishing, vol. 44(1), pages 69-80, March. [Downloadable!] (restricted)
    Other versions:
  9. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law & Economics, University of Chicago Press, vol. 21(1), pages 223-33, April.
  10. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June. [Downloadable!]
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  11. 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.
  12. Katz, Barbara G. & Joel Owen, 1992. "On the existence of franchise contracts and some of their implications," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 567-593, December. [Downloadable!] (restricted)
  13. Davila, Antonio & Foster, George & Gupta, Mahendra, 2003. "Venture capital financing and the growth of startup firms," Journal of Business Venturing, Elsevier, vol. 18(6), pages 689-708, November. [Downloadable!] (restricted)
  14. Michael, Steven C., 1996. "To franchise or not to franchise: An analysis of decision rights and organizational form shares," Journal of Business Venturing, Elsevier, vol. 11(1), pages 57-71, January. [Downloadable!] (restricted)
  15. Michael, Steven C, 1999. " The Elasticity of Franchising," Small Business Economics, Springer, vol. 12(4), pages 313-20, June. [Downloadable!] (restricted)
  16. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer. [Downloadable!] (restricted)
  17. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  18. Kaufmann, Patrick J., 1999. "Franchising and the choice of self-employment," Journal of Business Venturing, Elsevier, vol. 14(4), pages 345-362, July. [Downloadable!] (restricted)
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