Entrepreneurial signaling to attract resources: the case of franchising

Steven C. Michael
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Steven C. Michael: College of Business, University of Illinois Urbana Champaign, Champaign, IL, USA, Postal: College of Business, University of Illinois Urbana Champaign, Champaign, IL, USA

Managerial and Decision Economics, 2009, vol. 30, issue 6, pages 405-422

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.

Date: 2009
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