Signals that determine internationalisation

Abstract

International franchising business model is extensively and increasingly being used by entrepreneurs and firms seeking growth through geographic expansion. Thus, continued research efforts are needed to help entrepreneurs make wise choices when attracting investors into the business. Two popular theories (agency and resource scarcity) have been the basis on which international franchising has been explained. In this research, we expand on existing literature by focusing on signaling theory, answering the question “what are the signals that determine international franchising?” We answer this research question empirically, using cross-sectional data on a sample of 4150 business format franchise systems from 5 industries in the United States in 2016. The findings from this research show that there exists a positive relationship between a firm’s listing status, earning claim (Item 19), and international franchise association membership. Royalty rate and company owned units were not found to be significant with internationalisation. Another striking revelation from the research shows that franchisee in different industry react to signals differently. Keywords; Franchising, Internationalisation, Signaling