Franchising and initial public offering: a signaling perspective

Purpose: The 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/approach: This 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. Findings: Findings 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/implications: Study 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/value: While 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.