Effects of brand-related and market signals on franchisees’ entrepreneurial decisions: a multi-country panel data analysis

  • Esther Calderón-MongeEmail author
  • Pilar Huerta-Zavala
  • Jannett Ayup-González


This paper analyses the influence of market and brand-related signals on franchisees’ decisions when choosing a franchise brand with which to open an outlet for the first time. Panel data methodology was used to analyse a sample of 1277 chains operating in Spain, Mexico and Peru between 2004 and 2013. The results show that market signals prevail over brand-related signals. Within brand-related signals, franchisees first seek information relating to the brand’s sector and then seek information relating to the brand’s value. Franchisors should match the content of the signals they send to the market to the true characteristics of the franchise. Franchisors should also endeavour to ensure the country where they operate has general and franchise-specific legislation that fosters business activity by both franchisor and franchisee. The use of institutional quality as a signal in a multi-country study represents a significant contribution to the literature on franchising.


Franchisee Entrepreneurship Signalling theory Brand quality Institutional quality Multi-country 

JEL classification




The authors thank Cynthia A. Sanborn, Ph. D., Chair of Research Centre of the University Pacific (Lima, Perú), who provided general support.


  1. Acs, Z. J., & Virgill, N. (2010). Entrepreneurship in developing countries. Foundations and Trends in Entrepreneurship, 6(1), 1–68.Google Scholar
  2. Acs, Z. J., Desai, S., & Hessels, J. (2008). Entrepreneurship, economics development and institutions. Small Business Economics, 31(2/3), 219–234.Google Scholar
  3. Agrawal, D., & Lal, R. (1995). Contractual arrangements in franchising: An empirical investigation. Journal of Marketing Research, 32(2), 213–219.Google Scholar
  4. Alon, I. (2001). The use of franchising by U.S. based retailer. Journal of Small Business Management, 39(2), 1–12.Google Scholar
  5. Alvarez, C., & Urbano, D. (2011). Environmental factors and entrepreneurial activity in Latin America, Academia. Revista Latinoamericana de Administración, 48, 31–45.Google Scholar
  6. Arellano, M., & Bond, S. (1991). Some test of specification for panel data: Monte Carlo evidence and an application to employment equations? Review of Economic Studies, 58, 277–297.Google Scholar
  7. Baena, V. (2012). Market conditions driving international franchising in emerging markets. International Journal of Emerging Markets, 7(1), 49–71.Google Scholar
  8. Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive and destructive. Journal of Political Economy, 98(5), 892–921.Google Scholar
  9. Boettke, P., & Coyne, C. (2003). Entrepreneurship and development: Cause or consequence? In R. Koppl, J. Irner, & P. Kurrild-Kllitgaard (Eds.), Austrian economics and entrepreneurial studies 6 (pp. 67–88). Bingley: Emerald Group Publishing Limited.Google Scholar
  10. Bordonaba, V., Lucía, L., & Polo, Y. (2011). Determinants of firm size in the franchise distribution system. Empirical evidence from the Spanish market. European Journal of Marketing, 45(1/2), 170–190.Google Scholar
  11. Bruton, G., Ahlstron, D., & Li, H. L. (2010). Institutional theory and entrepreneurship, where are we now and where do we need to move in the future? Entrepreneurship Theory and Practice, 34(3), 421–440.Google Scholar
  12. Busenitz, L. W., Gómez, C., & Spencer, S. W. (2000). Country institutional profiles: Unlocking entrepreneurial phenomena. The Academy of Management Journal, 43(5), 999–1003.Google Scholar
  13. Combs, J. G., & Castrogiovanni, G. J. (1994). Franchisor strategy: A proposed model and empirical rest of franchise versus company ownership. Journal of Small Business Management, 32(2), 37–48.Google Scholar
  14. Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signalling theory: A review and assessment. Journal of Management, 37(1), 39–67.Google Scholar
  15. Croonen, E. P. M., & Brand, M. J. (2015). Antecedents of franchisee responses to franchisor-initiated strategic change. International Small Business Journal, 33(3), 254–276.Google Scholar
  16. Cyrenne, P. (2014). Dual distribution and the Penrose effect. International Journal of the Economics of Business, 21(1), 55–76.Google Scholar
  17. Dant, R. P., & Grünhagen, M. (2014). International franchising research: Some thoughts on the what, where, when, and how. Journal of Marketing Channels, 21(3), 124–132.Google Scholar
  18. Dawar, N., & Parker, P. (1994). Marketing universals: Consumers use the brand name, price, physical appearance and retailer reputation as signals of product quality. Journal of Marketing, 58(2), 81–95.Google Scholar
  19. Doherty, A. M., Chen, X., & Alexander, N. (2014). The franchise relationship in China: Agency and institutional theory perspectives. European Journal of Marketing, 48, 1664–1689.Google Scholar
  20. Ehrmann, T., & Spranger, T. (2005). Why do franchisors combine franchises and company-owned units? Social science research network working paper. Resource document: SSRN. or Accessed 26 June 2017.
  21. Fakos, A., & Merino, M. (2017). Multinational franchise entry and institutional quality: Evidence from Mexican cities. Management Research: Journal of the Iberoamerican Academy of Management, 15(3), 313–337.Google Scholar
  22. Fernandez, M., & Melian, L. (2005). An analysis of quality management in franchise systems. European Journal of Marketing, 39(5/6), 585–605.Google Scholar
  23. FTSE International Limited. (2015). FTSE Annual Country Classification Review. Available at: Accessed 26 June 2017.
  24. Gallini, N. T., & Lutz, N. A. (1992). Dual distribution and royalty fees in franchising. Journal of Law, Economics, and Organization, 8(3), 471–501.Google Scholar
  25. Gerhardt, S., Hazen, S., Dudley, D., & Freed, R. (2013). Franchisor fees & expense Requirements Base lined to McDonald’s corporation. ASBBS E-Journal, 9(1), 71–81.Google Scholar
  26. Gillis, W., & Castrogiovanni, G. J. (2012). The franchising business model: An entrepreneurial growth alternative. International Entrepreneurship and Management Journal, 8(1), 75–98.Google Scholar
  27. Grünhagen, M., & Mittelstaedt, R. A. (2005). Entrepreneurs or investors: Do multi-unit franchisees have different philosophical orientation? Journal of Small Business Management, 43(3), 207–225.Google Scholar
  28. Guilloux, V., Gauzente, C., Kalika, M., & Dubost, N. (2004). How France’s potential franchisees reach their decisions: A comparison with franchisers’ perceptions. Journal of Small Business Management, 42(2), 218–224.Google Scholar
  29. Hair, J. F. (2004). Análisis multivariante. Madrid: Prentice-Hall.Google Scholar
  30. Hall, J. C., & Sobel, R. S. (2008). Institutions, entrepreneurship, and regional differences in economic growth. American Journal of Entrepreneurship, 1, 69–96.Google Scholar
  31. Hoffman, R., Munemo, J., & Watson, S. (2016). International franchise expansion: The role of institutions and transaction costs. Journal of International Management, 22, 101–104.Google Scholar
  32. Hofstede, G. (1991). Culture and organization. New York: McGraw-Hill.Google Scholar
  33. Johnson, S., Kaufman, D., & Shleifer, A. (1997). Politics and entrepreneurship in transition economies. In Working Paper n 57. Ann Arbor: Davidson Institute Research Workshop, University of Michigan. Scholar
  34. Kacker, M., Dant, R. P., Emerson, J., & Coughlan, A. T. (2016). How firm strategies impact size of partner-based retail networks: Evidence from franchising. Journal of Small Business Management, 54, 506–531.Google Scholar
  35. Kantis, H., Masahiko, I., & Masahiko, K. (2002). Entrepreneurship in emerging economies: The creation and development of new firms in Latin America and East Asia. Washington, DC: Inter-American Development Bank.Google Scholar
  36. Kaufman, P. J., & Dant, R. P. (2001). The pricing of franchise rights. Journal of Retailing, 77(4), 537–545.Google Scholar
  37. Kaufman, P. J., & Eroglu, S. (1998). Standardization and adaptation in business format franchising. Journal of Business Venturing, 14, 69–85.Google Scholar
  38. Kaufman, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues. Policy research working paper n. 5430, World Bank.Google Scholar
  39. Ketchen, D. J., Short, J. C., & Combs, J. G. (2011). Is franchising entrepreneurship? Yes, no, and maybe so. Entrepreneurship and Practice, 35(5), 583–593.Google Scholar
  40. Kirmani, A., & Rao, A. R. (2000). No pain, no gain: A critical review of the literature on signaling unobservable product quality. Journal of Marketing, 64(2), 66–79.Google Scholar
  41. Lafontaine, F., & Oxley, E. (2004). International franchising practices in Mexico: Do franchisors customize their contracts? Journal of Economics & Management Strategy, 13(1), 95–123.Google Scholar
  42. Lafontaine, F., Perrigot, R., & Wilson, N. (2016). The quality of institutions and organizational form decisions: Evidence from within the firm. Journal of Economics & Management Strategy, 26(2), 1–28.Google Scholar
  43. Liang, H., Lee, K., Huang, J., & Lei, H. (2013). The optimal decision in franchising under profit uncertainty. Economic Modelling, 31, 128–137.Google Scholar
  44. Madanoglu, M., Alon, I., & Shoham, A. (2017). Push and pull factors in international franchising. International Marketing Review, 34(1), 29–45.Google Scholar
  45. Michael, S. C. (2009). Entrepreneurial signaling to attract resources: The case of franchising. Managerial & Decision Economics, 30(6), 405–425.Google Scholar
  46. Michael, S. C. (2014). Can franchising be an economic development strategy? An empirical investigation. Small Business Economic, 42(3), 611–620.Google Scholar
  47. Minniti, M., Bygrave, W. D., & Autio, E. (2005). Global Entrepreneurship Monitor: 2005 executive report. Wellesley, MA: Babson College.Google Scholar
  48. North, D. C. (1994). Economic performance through time. American Economic Review, 84(3), 359–367.Google Scholar
  49. North, D. C. (2005). Understanding the process of economic change. Princeton: Princeton University Press.Google Scholar
  50. Organisation for Economic Cooperation and Development (2000). Latin American Economic Outlook 2000. OECD Development Centre, FranceGoogle Scholar
  51. Pénard, T., Raynaud, E., & Saussier, S. (2003). Dual distribution and royalty rates in franchised chains: An empirical analysis using French data. Journal of Marketing Channel, 10(3/4), 5–31.Google Scholar
  52. Perrigot, R. (2006). Services vs. retail chains: Are there any differences? Evidence from the French franchising industry? International Journal of Retail & Distribution Management, 34(12), 918–939.Google Scholar
  53. Petrankis, P. E. (2012). The construction of opportunity entrepreneurship function. International Entrepreneurship and Management Journal, 10(2), 207–230.Google Scholar
  54. Polo-Redondo, Y., Bordonaba-Juste, V., & Lucia-Palacios, L. (2011). Determinants of firm size in the franchise distribution system: Empirical evidence from the Spanish market. European Journal of Marketing, 45(1/2), 170–190.Google Scholar
  55. Rodrik, D. (2008). Second-best institutions. American Economic Review, 98(2), 100–104.Google Scholar
  56. Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2), 131–165.Google Scholar
  57. Scott, W. R. (1995). Institutions and organizations. Thousand Oaks: Sage Publications.Google Scholar
  58. Shane, S., Shankar, V., & Aravindaksha, A. (2006). The effects of new franchisor partnering strategies on franchise system size. Management Science, 52(5), 773–787.Google Scholar
  59. Thompson, R. (1994). The franchise life cycle and the Penrose effect. Journal Economic Behavior & Organization, 24, 207–218.Google Scholar
  60. Tsang, S. S., & Finnegan, C. A. (2013). How do franchisor policies & industry attractiveness impact franchise timing? Evidence from entrepreneur’s top 500 franchisors. International Journal of Retail & Distribution Management, 41(2), 135–154.Google Scholar
  61. Tuunanen, M., & Hyrsky, K. (2001). Entrepreneurial paradoxes in business format franchising: An empirical survey of Finnish franchisees. International Small Business Journal, 19(4), 47–62.Google Scholar
  62. Weaven, S., & Frazer, L. (2006). Investment incentives for single and multiple unit franchisee. Qualitative Market Research: An International Journal, 9(3), 225–242.Google Scholar
  63. Welsh, D., & Alon, I. (2002). Global franchising in emerging and transitioning economies. International Journal of Business and Economics, 2(1), 332–343.Google Scholar
  64. Welsh, D., Alon, I., & Falbe, C. (2006). An examination of international retail franchising in emerging markets. Journal of Small Business Management, 44(1), 130–149.Google Scholar
  65. Wennekers, S., Stel, A., Thurik, A. R., & Reynolds, P. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293–309.Google Scholar
  66. Wiese, N. (2017). The effects of institutional quality and market potential on the agglomeration of fast food franchises in central America. Management Research: Journal of the Iberoamerican Academy of Management, 15(3), 268–291.Google Scholar
  67. Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126, 25–51.Google Scholar
  68. Windsperger, J., & Dant, R. P. (2006). Contractibility and the ownership redirection in franchising: A property rights view. Journal of Retailing, 82(3), 259–272.Google Scholar
  69. Wright, O., & Winzar, H. (2014). Franchise system investment disclosure: Signaling value to prospective franchisees. Asia Pacific Journal of Marketing and Logistics, 26(3), 365–377.Google Scholar
  70. Yang, J.-S., Lee, S.-Y., & Han, K. (2015). Effects of relationship value, alternative attractiveness, and investment size on franchisee commitment. Journal of Distribution Science, 13(8), 41–48.Google Scholar
  71. Yeung, R. M. W., Brookes, M., & Altinay, L. (2016). The hospitality franchise purchase decision making process. International Journal of Contemporary Hospitality Management, 28(5), 1009–1025.Google Scholar
  72. Zachary, M. A., McKenny, A. F., Short, J. C., Davis, K. M., & Wu, D. (2011). Franchise branding: An organizational identity perspective. Journal of the Academy of Marketing Science, 39(4), 629–645.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Faculty of Economics and Business AdministrationUniversity of BurgosBurgosSpain
  2. 2.Faculty of Commerce and Business AdministrationUniversity Autonoma TamaulipasTampicoMexico

Personalised recommendations