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The impact of franchisor signaling on entrepreneurship in emerging markets

Abstract:

This article contributes to the body of knowledge on emerging economy entrepreneurship in terms of franchisor entry and expansion. The study shows that franchisors in Brazil use strategic signaling to attract potential franchisees and expand their network, in contrast with previous results regarding developed countries. Strategic signaling is associated with the context of rapid evolution, uncertainty, and institutional voids characterizing emerging economies, thus resulting in exacerbated information asymmetries. Rather than the network organizational form, Brazilian franchisors should use the contract design, more precisely the royalty rate, as a signaling device.