Impact of the COVID-19 pandemic: Evidence from the U.S. restaurant industry

The current study examines how the effect of COVID-19 on U.S. restaurant firms’ stock returns varies according to the firms’ pre-pandemic characteristics by employing three firm-level dimensions (financial conditions, corporate strategies, and ownership structure). Employing 795 firm-year observations obtained from annual reports and other databases, this study found that restaurant firms with past characteristics of larger size, more leverage, more cash flows, less ROA, and more internationalization are more resilient to stock declines reacting to COVID-19 than otherwise similar firms. Whereas, dividend, franchising, institutional ownership, and managerial ownership did not show any significant moderating effect on the relationship between COVID-19 and stock returns. This study sheds light on the research topic by providing insights into drivers of restaurant firm’s stock returns during the COVID-19 shock. Future studies can employ the variables and method used in the current study to extend the understanding of the issue.     

The corporate social responsibility–financial performance link in the U.S. restaurant industry: Do economic conditions matter?

This study examines the role played by economic conditions (recessionary periods) on the link between corporate social responsibility (CSR) and corporate financial performance (CFP) in the U.S. restaurant industry. The choice of industry setting is based on the fact that the restaurant industry is subject to consumer discretionary expenditures and is thus highly sensitive to the state of the economy. This study further examines the relationship between CSR and CFP by dichotomizing CSR activities based on whether they are related to the firm's core operations or not, thus parsing out the effect of operations-related (OR) and non-operations-related (Non-OR) CSR activities, providing a more nuanced explanation of how some CSR activities may be more beneficial than others, to firm value in hard economic times.     

The influence of board interlocks on firm performance: In the context of geographic diversification in the restaurant industry

Given the strategic importance of resources and service that interlocking directors bring to a firm, this study aims to examine the influence of board interlocks on financial performance in the restaurant industry based on the resource dependence theory. Further, as the primary purpose, this study incorporates geographic diversification as a pivotal contingent factor, playing a moderating role on the board interlocks-firm performance relationship. This study found not only a positive main effect of board interlocks on financial performance, but also a positive moderating effect of geographic diversification on the relationship between board interlocks and firm performance. These findings contribute to the corporate governance literature by providing a unique dimension that geographic diversification is a salient factor adjusting the effect of board interlocks on firm performance in the restaurant industry. The results further offer implications for managers and shareholders of restaurant firms when electing directors as representatives of shareholders.     

Is restaurant franchising capital a substitute for or a complement to debt?

Since Oxenfeldt and Kelly’s 1969 study, the resource scarcity hypothesis has been considered a representative theory to explain franchising motivations. Whether franchising capital is a substitute for or a complement to debt has been discussed in the franchise literature but the relationship remains unclear. Using Frank and Goyal’s (2003) financial deficit model along with trade-off and pecking order theories, this study shed light on whether franchising capital acts as a substitute for and/or to complement debt in the restaurant industry. This study discovered that the adjustment speed of long-term debt leverage was faster for franchise restaurant firms than non-franchise restaurant firms. Further, the average long-term leverage target was lower for franchise restaurants. Consequently, this study revealed that franchising capital functioned as a substitute for long-term debt. In contrast, the adjustment speed of short-term debt leverage was slower for franchise restaurants and, thus, franchising capital complemented short-term debt.     

Do mindfulness and perceived organizational support work? Fear of COVID-19 on restaurant frontline employees’ job insecurity and emotional exhaustion

The coronavirus disease (COVID-19) outbreak has impacted the restaurant industry tremendously. Building on the Conservation of Resources Theory, the current study investigates the relationships among U.S. restaurant frontline employees’ fear of COVID-19, job insecurity, and emotional exhaustion. The study also examines the moderating role of employee mindfulness and perceived organizational support. SPSS PROCESS macro was used for hypotheses testing. Results suggested that restaurant frontline employees’ fear of COVID-19 was positively associated with both job insecurity and emotional exhaustion. Fear of COVID-19 had an indirect effect on restaurant frontline employees’ emotional exhaustion via job insecurity. Employee mindfulness buffered the positive relationship between fear of COVID-19 and job insecurity. Perceived organizational support was found to intensify the positive relationship between job insecurity and frontline employees’ emotional exhaustion. The research provided useful human resource management practices for U.S. restaurant businesses amid crises such as COVID-19.     

Board diversity and firm performance in the U.S. tourism sector: The effect of institutional ownership

This study examines the relationship between board diversity and firm performance in the U.S. tourism sector by using institutional ownership as a contingency that moderates this relationship. The study's sample includes publicly-traded companies from the U.S. restaurant, hotel and airline industries. The hypotheses are tested via two-way fixed-effects regression, and the findings of the study indicate that board diversity is positively associated with financial performance (Tobin's Q), and the effect of board diversity on performance is contingent on the degree of institutional ownership. More precisely, the study finds that board diversity has a larger effect on financial performance when institutional ownership is low on a tourism firm's ownership structure. Overall, the findings suggest that boards' internal control and monitoring on management is important to derive higher financial performance, and even yet it is more important when external monitoring by institutional owners, proxied by percentage of institutional ownership, is weak.     

How is the hospitality and tourism industry different? An empirical test of some structural characteristics

Structural characteristics, such as competition, risk, leverage and capital intensity, directly impact the strategic management of firms operating within an industry. We provide an empirical test and formally compare the structural characteristics of the hospitality and tourism (HT) industry with other industries. Our results, based on a sample of firms from the S&P 1500 index over 21 years, show that the HT industry has higher leverage, higher risk, higher capital intensity and higher competitive rivalry than other industries in the U.S. economy. The formal identification and recognition of these differences provides justification for using the HT industry as a context for testing business theories, and can explain differences in decision-making and firm outcomes such as financial and social performance, as well as efficiency, growth, and survival of HT firms.     

The Determinant of the Hospitality Industry's Unsystematic Risk: A Comparison Between Hotel and Restaurant Firms

ABSTRACT

Unsystematic risk is accepted as an important factor in stock valuation. Despite the importance, little has been done to study the relationship of unsystematic risk to stock values in the hospitality industry. This study attempted to advance the understanding of financial variables that could be related to unsystematic risk of hospitality firms. Regression models were developed for hotel and restaurant firms, using unsystematic risk as the dependent variable and financial variables as independent variables. The major findings of this study indicate: 1) more profitable hospitality companies have less unsystematic risk, 2) reducing reliance on debt financing could reduce unsystematic risk, 3) the positive relationship between operating leverage and unsystematic risk, suggesting that decreasing operating leverage could mitigate the stock price volatility of hospitality firms, and 4) large hotel and restaurant firms have less unsystematic risk than small firms. This study should help management of hospitality firms incorporate effects of shareholder expectations into their operational decision making as an integral part of long-range financial planning.     

Does size matter? Corporate social responsibility and firm performance in the restaurant industry

Despite an increasing number of hospitality studies on the link between corporate social responsibility (CSR) and corporate financial performance (CFP), the literature has predominantly focused on the CSR–CFP relation without considering moderating factors. Consequently, the current study introduces firm size as a potential moderator on the CSR–CFP relationship. Performing a two-way fixed-effects model by firm and year with Newey-West standard errors, this study finds that firm size moderates the effect of positive CSR on CFP while it does not moderate the effect of negative CSR on CFP in the U.S. restaurant context.     

Factors influencing customers’ dine out intention during COVID-19 reopening period: The moderating role of country-of-origin effect

COVID-19 pandemic negatively affected the restaurant industry and reopening provides restaurants an opportunity to survive this crisis. This study examined the interplay of perceived importance of preventive measures, dining involvement, brand trust, and customers’ intention to dine out at American Chinese restaurants during the reopening period. Additionally, the study investigated the moderating role of country-of-origin (COO) effect on these relationships. 296 U.S. restaurant customers recruited via a market research company completed the online survey. Structural equation modeling was used for data analyses. The results indicated that dining involvement had a direct positive effect on customers’ intention to dine out. Moreover, both perceived importance of preventive measures and dining involvement could enhance customers’ intention to dine out indirectly via brand trust. Positive COO effect moderated the relationship between perceived importance of preventive measures and brand trust. The study provided significant implications for restaurant operators in the U.S during the reopening period.     

Credit Fluctuations and Lodging Firms: An Investigation of the Differing Capital Structures in the U.S. Lodging Industry

In the area of corporate finance, decisions regarding the constituents of overall capital structure are the most critical. These financing decisions are even more critical to lodging firms because of the unique nature of the industry. This study empirically investigates the effect of credit availability on the leverage of the lodging industry in the U.S. using multivariate analysis of variance. Three time points of differing credit availability (low, high, and average) were identified using the Case-Shiller home price index. Leverage, net leverage, and short-to-long-term debt ratios of large and small U.S. lodging firms were analyzed at these differing credit availability time points to assess any significant differences. Significant effects of credit availability were found on the leverage and net leverage of lodging firms, but no significant effect was found on the short- to long-term debt ratio of U.S. lodging firms. Interestingly, the leverage levels were found to be highest at the average availability of credit than when compared to the high and low availability of credit.     

How does social capital influence the hospitality firm's financial performance? The moderating role of entrepreneurial activities

Although previous studies have examined the relationship between social capital and firm performance under boundary conditions such as firm age, industry characteristics, and institutional conditions, the literature is silent on the types of firm activities linking social capital to financial performance. This study investigates the moderating role of firm-level entrepreneurial activities (service innovation, corporate venturing and strategic renewal) on the relationship between social capital and financial performance in a sample of Chinese hotels. The findings indicate that the interaction of external and internal social capital has a positive effect on financial performance. In addition, innovation and corporate venturing enhance the relationship between financial performance and social capital. To achieve a competitive advantage, hospitality firms should not only accumulate social capital but should also deliberately implement strategies that enhance entrepreneurial activities to fully unleash the potential of social capital.     

Working capital,cash holding,and profitability of restaurant firms

Efficient working capital management is becoming important for restaurant firms coping with weak financial conditions and increased economic uncertainty. This study investigates the impact of restaurant firms’ working capital on their profitability. We further examine the effects of firms’ cash levels on the relationship between working capital and profitability. The findings ascertain a strong inverted U-shape relationship between working capital and a firm's profitability, which indicates the existence of an optimal working capital level for restaurant firms. This study also reveals that a firm's cash level is an important factor for efficient working capital management. The results suggest that interactive effects exist among working capital, cash levels, and profitability. Thus, restaurant managers should consider these different roles and impacts when developing an efficient working capital management strategy. Detailed results and implications are presented in the main body of this paper.     

Does franchising help restaurant firm value?

A company's financial performance is of keen interest to many groups of people, including management, employees, shareholders, government, and so on. Although franchising has been one of the most common strategies to maximize a firm's financial performance in the restaurant industry, little research has been conducted regarding the relationship between the degree of franchising and the restaurant firm's financial performance. This study initially proposed a sigmoid relationship between the degree of franchising and the restaurant firm's financial performance based on the diversification theory. Findings, however, do not fully support the sigmoid relationship; rather a more quadratic or inverted U-shaped relationship was found.     

Restaurants and COVID-19: What are consumers’ risk perceptions about restaurant food and its packaging during the pandemic?

The COVID-19 pandemic and subsequent U.S. in-restaurant dining restrictions deleteriously affected the restaurant industry. While dining restrictions were adopted to prevent human contact, evidence suggests that consumers may mistakenly perceive that restaurant "food" and its "packaging" are risky sources of COVID-19. To explore consumers' COVID-19 risk perceptions about food itself, restaurant food specifically, and restaurant food packaging, this study collected nationwide U.S. consumer survey data (n = 958) using an online consumer panel. Findings showed that: (1) consumers were less concerned about contracting COVID-19 from food in general than restaurant food and its packaging, with consumer restaurant concern highest for food served in restaurants, and lowest for hot/cooked restaurant food followed by restaurant food from carry-out; and (2) the risk perceptions of consumers varied with financial concern for food, gender, and being in a high-risk category of COVID-19. Implications for researchers, restauranteurs, government, and food safety professionals are discussed.     

An exploratory study of managerial compensation in the restaurant industry

ABSTRACT

Set within the human capital framework, the focus of this exploratory study is to investigate how individual and industry attributes affect the earnings of salaried restaurant managers in the United States. Previous compensation studies in the restaurant industry have almost exclusively focused on executive compensation and its relationship to a firm's financial variables. Given the size of the industry, it is important to investigate compensation practices at various levels of its leadership. The findings show that relevant work experience, gender, education, race, and property size are significant attributes effecting restaurant managers’ compensation. Practical implications are provided.     

A Proposed Research Agenda for the Refinement of the High Performance Work System Construct in the U.S. Restaurant Industry

Abstract

The current research proposes a framework for the investigation and conceptualization of high performance work systems in the U.S. restaurant industry. The projected U.S. restaurant industry sales for 2006 are $511.1 billion according to the National Restaurant Association (National Restaurant Association, 2005). Because of its size and impact on the foodservice industry and the hospitality industry in general, improving the performance of the restaurant industry could help increase overall revenues and guest satisfaction in the foodservice and hospitality industry. By identifying a list of high performance work practices in the industry, a more in-depth exploration of these practices and then organizational policies can be aligned together to help improve overall performance in the U.S. restaurant industry. The current study provides theoretical background and support for the high performance work systems theory.     

Impacts of timeshare operation on publicly traded U.S. hotels’ firm value,risk and accounting performance

With 1615 timeshare resorts and 176,232 units in the U.S. in 2006 and making an economic impact of approximately $92 billion on the U.S. economy in 2005, the timeshare industry has proved as one of the fastest growing segments of the hospitality and travel industry. However, little research has investigated the impacts of timeshare operations on lodging firms’ financial issues. The main purpose of this study is to investigate the impact of timeshare operation on lodging firm's financial value, risk and accounting performance. Findings suggest that the existence of an inverted U-shaped relationship between timeshare operation and lodging firm value; however timeshare operation shows a U-shaped relationship with ROE and no relationship with risk.     

Revisit to the determinants of capital structure: A comparison between lodging firms and software firms

This study validates the contradiction between capital structure theories and previous empirical studies, and it further identifies lodging firms’ unique leverage behavior through a comparison to software firms, using a generalized least squares analysis. This study also explores the joint effects of key financial leverage determinants. The findings indicate that fixed assets, growth opportunities, and the joint effect of these two variables are the significant long-term debt determinants of the lodging industry. The analysis of the joint effect also suggests that fixed assets and growth opportunities affect each other's relationship with long-term debt usage. With the findings on lodging firms’ unique financing rationale, authors hope to provide useful information for corporate financial planners and lending institutions regarding debt-financing behavior.     

Capital structure in the hospitality industry: The role of the asset-light and fee-oriented strategy

An asset-light and fee-oriented strategy (ALFO), which reduces risk and facilitates firm growth with minimum capital investment, has increasingly gained attention from industry practitioners and academic scholars alike, especially in the service sector like the hospitality industry. We empirically examine how ALFO is employed and how it is related to the capital structure, i.e. the proportion of debt and equity financing, in hospitality firms. Using a sample of 982 firm-year observations over the period 2002–2016, we find that ALFO is widely used by the hospitality industry, and as expected, the fee-income ratio and the degree of franchising have increased, while asset tangibility and capital intensity have decreased. Interestingly, although ALFO is positively related to long-term debt ratios of hospitality firms, our sub-sector analyses indicate that the relationship is only significant in the restaurant sector and not in the hotel sector. Our study contributes to the literature by identifying an important industry-specific variable that affects the capital structure of hospitality firms.