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

Abstract

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.