International Franchise Expansion: The Role of Institutions and Transaction Costs

Richard C. Hoffman, Jonathan Munemo, Sharon Watson
  • Journal of International Management, June 2016, Elsevier
  • DOI: 10.1016/j.intman.2016.01.003

Effect of country characteristics on International franchise expansion

What is it about?

In this study, we examine how a country's institutional environment affects the international expansion activities of U.S. franchise companies. We draw on institutional and transaction cost theories to develop a model and a set of hypotheses regarding the effect of political, regulatory and infrastructural institutions, as well as economic instability, on international franchise expansion. Using a sample of U.S. franchise firms and data from a combination of secondary sources, we test these hypotheses by estimating a panel regression model. Our results demonstrate for the first time that, in addition to favorable political governance, a country's business climate, including entry regulations, taxes, and communications infrastructure, is an important predictor of foreign franchise firms' expansion into that country. Implications for practice and future research also are discussed.

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