Quality Signaling Through Ex-Ante Voluntary Information Disclosure in Entrepreneurial Networks: Evidence from Franchising

Sadeh, F., Kacker, M. Quality signaling through ex-ante voluntary information disclosure in entrepreneurial networks: evidence from franchising. Small Bus Econ 50, 729–748 (2018). https://doi.org/10.1007/s11187-017-9892-4

43 Pages Posted: 5 Mar 2017 Last revised: 22 May 2020

See all articles by Farhad Sadeh

Farhad Sadeh

Eastern Illinois University - Lumpkin College of Business and Technology

Manish Kacker

McMaster University - Michael G. DeGroote School of Business

Date Written: March 15, 2017

Abstract

This paper examines antecedents of ex-ante voluntary information disclosures for standardized contracts in entrepreneurial networks. Entrepreneurs (e.g., franchisors) may make such disclosures to prospective business partners in order to signal profitability of partnering, attract financial and managerial resources and develop their entrepreneurial networks. In practice, only a fraction of franchisors make financial performance representations (FPR), an ex-ante voluntary information disclosure to prospective franchisees. We address gaps in the signaling, voluntary information disclosure, franchising, entrepreneurship and small and medium enterprises (SME) literature. We draw on signaling theory to develop a theoretical framework and investigate factors that influence a franchisor’s disclosure decision. We evaluate hypotheses from our theoretical framework through econometric analyses of multi-sector panel data for the U.S. franchising industry. We estimate a logit model and use lagged independent variables to address our dichotomous independent variable and potential endogeneity respectively. Our results support the view that firms signal their quality through FPRs to attract potential business partners and expand their entrepreneurial networks. Beyond the extant literature, we find that rigorous partner qualification mechanism is another driver of voluntary information disclosure in franchising. Our findings also provide empirical support for the complementary role played by multiple quality signaling mechanisms used by franchisors and yield public policy implications for franchising.

Keywords: Marketing Channels, Retailing, Agency Theory, Franchising, Contracting, Voluntary Information Disclosure, Entrepreneurship, Signaling, Financial Performance Representations, Replication Studies, Econometrics Panel Data Modeling, Logistic Regression

JEL Classification: L14, L26, D22, K23, M38

Suggested Citation

Sadeh, Farhad and Kacker, Manish, Quality Signaling Through Ex-Ante Voluntary Information Disclosure in Entrepreneurial Networks: Evidence from Franchising (March 15, 2017). Sadeh, F., Kacker, M. Quality signaling through ex-ante voluntary information disclosure in entrepreneurial networks: evidence from franchising. Small Bus Econ 50, 729–748 (2018). https://doi.org/10.1007/s11187-017-9892-4, Available at SSRN: https://ssrn.com/abstract=2927277 or http://dx.doi.org/10.2139/ssrn.2927277

Farhad Sadeh (Contact Author)

Eastern Illinois University - Lumpkin College of Business and Technology ( email )

Charleston, IL 61920-3099
United States

HOME PAGE: http://https://www.eiu.edu/business/personnel.php?id=fsadeh&subcat=270

Manish Kacker

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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