Franchising and initial public offering: a signaling perspective

Abstract

PurposeThe purpose of this paper is to examine the factors associated with franchisors going public using signaling theory. Listing on the stock market is a sign that the business concept has reached a threshold level of acceptance and success. To increase the relevance of this study to practitioners, the authors focus on franchising-specific controllable variables.Design/methodology/approachThis study uses a sample of 2,134 franchisors from US drawn from a survey by Entrepreneur magazine during the years 2015–2016. Binominal logistic regression models are used for analysis of the data.FindingsFindings indicate that time to franchise, international operations, franchise association affiliation, disclosure and extent of top management commitment are factors positively related to the likelihood of a franchisor being publicly listed.Research limitations/implicationsStudy findings are based on a sample of franchisors from North America, where financial markets are well developed, and due caution should be exercised before generalizations are made to other contexts. A major implication of this study is that signaling theory may provide an important supplement to the already well-entrenched resource-scarcity and agency theoretic explanations in franchising research.Originality/valueWhile signaling theory is growing in importance in the franchising literature, this study is the first to uncover the relationship between company signals and initial public offering.