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Entrepreneurial signaling to attract resources: the case of franchising

โœ Scribed by Steven C. Michael

Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
175 KB
Volume
30
Category
Article
ISSN
0143-6570

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โœฆ Synopsis

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 ยฉ 2009 John Wiley & Sons, Ltd.

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