Firm growth patterns: Examining the associations with firm size and internationalization

Understanding the growth patterns of an industry is essential for establishing sustainable growth strategies. However, until recently little had been known about restaurant firm growth patterns. Thus, this study examined the growth patterns of restaurant firms in association with firm size class and internationalization, after controlling for total and long-term debt leverage, retained earnings, and growth opportunity. Overall, the results of this study showed that small restaurant firms grow faster than large restaurant firms but the growth rate decreases as firm size increases. Furthermore, the growth rate of large firms decreased more slowly than small firms. In terms of internationalization, this study found that as firm size increases, the growth rate of small international firms decreases more rapidly than that of small domestic firms. However, the growth rate of large international firms decreases more slowly than that of large domestic firms. These findings indicate the appropriateness of internationalization strategies for large restaurant firms but the inappropriateness of these strategies for small firms. More detailed results and discussion are also provided.     

The effect of increasing employee compensation on firm performance: Evidence from the restaurant industry

This study examined the effect of employee compensation on restaurant performance from both short-term and long-term perspectives. The results of this study showed that increasing employee compensation immediately enhances (decreases) restaurant revenue growth (profitability) but decreases (improves) restaurant revenue growth (profitability) after one year. The results suggested that restaurant firms can utilize employee compensation as a management tool to enhance performance in terms of both short-term revenue growth and long-term profitability gains. The results further implied that restaurant firms could consider making small but continuous increases in employee compensation to maintain higher performance outcomes. However, such increases should be implemented with appropriate initiatives to reduce shirking behaviors by overpaid employees.     

Inter-relationship between firm growth and profitability

There is a widespread presumption that there is a close link between firm growth and profitability. However, most of the past studies on firm growth and profitability have been conducted without mutual associations. Only a few studies, thus far, have scrutinized the inter-relationship between firm growth and profitability and the results have been inconsistent. The main reason for this inconsistency is due to the lag structure of the models in each study. To address the issue, this study conducted panel unit-root tests on firm growth and profitability separately and then made appropriate models using dynamic panel system GMM estimators. Through analyzing these models, this study found that in restaurant firms the prior year's profitability had a positive impact on the growth rate of the current year. However, the current and prior year's growth rates had a negative impact on the current year's profitability. This outcome implies that in the restaurant industry profit creates growth but growth impedes profitability. Further implications are also discussed in this paper.     

Growth-focused or profit-focused firms: Transitions toward profitable growth

Profitable growth is the most desirable state tourism and hospitality firm managers can hope to achieve. In reality, however, it is not easy for a tourism and hospitality firm to consistently grow and accumulate profits. In order to achieve profitable growth, some firms focus on sales growth while victimizing profits, while others concentrate on profits and hold off on growth. To better understand these strategies, this study investigated the growth state, profit state and transitions of restaurant firms. The findings of this study supported that profit-focused firms are more likely to achieve profitable growth than growth-focused firms. In addition, growth-focused firms with low liquidity had a higher likelihood of transitioning to a state of low growth and low profit in the short-term, and this liquidity effect was more serious for small firms in terms of long-term performance. Further, when profit-focused firms had few growth opportunities, large free cash flows increased the likelihood of transitioning to a state of low growth and low profit in the short-term. More detailed results are provided in this paper.     

Deal characteristics and M&A performance: How do hospitality firms fare?

The global hospitality industry has experienced significant consolidation in the past several decades. While evidence in the general business literature suggests that the target firm shareholders gain instead of the acquiring firm shareholders, some studies in the hospitality industry have suggested that mergers and acquisitions (M&As) are also beneficial to acquiring firms. Using a comparative study design and a comprehensive sample over 41 years, we empirically examine whether M&As create more value in the hospitality industry than in other industries and whether certain deal characteristics may explain the potential performance differential. Overall, we find that M&As in the hospitality industry outperform M&As in non-hospitality sectors. When examining deal attributes, we find that relative size of target, cash method of payment, and an unlisted target are characteristics positively related to merger performance and help explain some of the performance differential. We contribute theoretically and empirically to the literature by demonstrating that industry and deal effects play an important role in M&A performance.     

Duration of advertising effect: Considering franchising in the restaurant industry

How long do the effects of advertising actually last? This issue has received increased attention in the fields of marketing, accounting, and finance. However, despite the importance of advertising for firm management, research on the effective duration of advertising costs still remains in the exploratory stage. To address this research need, this study investigated how long advertising costs function to increase sales and intangible value in association with franchising in the restaurant industry. The results of this study showed that advertising expenditures had a positive short-term effect on sales growth, whereas advertising did not significantly impact sales growth in the long run. However, when advertising expenditures were considered together with franchising, the long-term interaction effect was positively significant. The results suggest that advertising has long-term positive effects on sales growth only in restaurant firms using a franchising system. This implies that advertising costs should be recognized as investment-like assets only in franchising restaurant firms. On the other hand, advertising ratio had both positive short-term and long-term effects on intangible value. In addition, once the advertising ratio was associated with franchising, the long-term interaction effect was negatively significant. More detailed explanations and implications are included in the conclusion.     

Effects of restaurant franchising: Does an optimal franchise proportion exist?

Franchising has significantly affected the US economy, contributing to a rapid growth of its retail sales. To identify whether franchising influences a restaurant firm's financial performance, this study investigated (1) the profitability and intangible values of both franchise and non-franchise restaurant firms and (2) the effect of the combination of franchised and company-owned outlets of restaurant firms (i.e., franchise proportion). The results of this study showed that (1) franchise firms had significantly higher profitability than non-franchise firms and (2) the relationships between franchise proportion and firm profitability and intangible value were curvilinear (inverted U-shape), verifying the existence of an optimal franchise proportion. The results propose a possibility that restaurant franchisors could maximize their profitability and intangible value with an optimal franchise proportion when other variables held constant, implying that it is important to pay attention to the franchise proportion together with other management strategies.     

Revisiting the financing behavior of restaurant firms: The firm-size perspective

In International Journal of Hospitality Management, Jang and Ryu [Jang, S., Ryu, K., 2006. Cross-balance sheet interdependencies of restaurant firms: a canonical correlation analysis. International Journal of Hospitality Management 25 (1), 159–166] published a research article about the financing behavior of restaurant firms, using a canonical correlation analysis. Even though the study presents a general picture of financing in restaurant firms, the financing behaviors of firms of different sizes may differ because they often face different financing environments. Thus, this study re-examines restaurant firms and compares the results with Jang and Ryu [Jang, S., Ryu, K., 2006. Cross-balance sheet interdependencies of restaurant firms: a canonical correlation analysis. International Journal of Hospitality Management 25 (1), 159–166] to further enhance the understanding of the financing behaviors. The results show that, despite the differences in firm sizes, overall financing behaviors are similar to those reported by Jang and Ryu [Jang, S., Ryu, K., 2006. Cross-balance sheet interdependencies of restaurant firms: a canonical correlation analysis. International Journal of Hospitality Management 25 (1), 159–166], although they also suggest that restaurant firms of different sizes do indeed exhibit some different cross-balance sheet interdependencies including relatively more reliance on accounts payable among small and medium firms and more use of long-term debts among large firms. Moreover, long-term assets related to stockholder equity more among large firms but related to supplier credit more among small and medium firms.     

The effect of environment risk,corporate strategy,and capital structure on firm performance: An empirical investigation of restaurant firms

The co-alignment process has been used in hospitality strategy as a framework to explain strategic orientation of firms. In this study, using a sample from the US restaurant industry, the authors test the simultaneous impact of surrogates from constructs identified as part of the co-alignment model, i.e. environment, strategy, and structure, on firm performance. Results indicate that a significant variance in firm performance is explained by the variables from the foregoing constructs of the co-alignment model. The robustness of this study provides restaurant firms’ managers a basis to evaluate their firms’ strategic orientation vis-à-vis its impact on firm performance.     

Insider ownership and firm performance: An examination of restaurant firms

This study investigated the relationship between insider ownership and firm performance in the restaurant industry. Convergence-of-interests and entrenchment hypotheses were tested via cross-sectional and panel two-stage least square (2SLS) GMM estimation methods for linear and non-linear models. The study found that there is an overall positive and significant relationship between insider ownership and firm performance. The quadratic model showed that restaurant firm performance increased until insider ownership was between 38 and 40%, whereas it decreased after that point. Consistent with the quadratic model, the piece-wise regression model showed that insider ownership had a positive impact on firm performance within a range of 5–25% and a negative influence beyond 25% insider ownership. Consequently, this study revealed that convergence-of-interests and entrenchment effects of insider ownership co-exist in the restaurant industry. While convergence-of-interests effects are effective, an excessive granting of stock options or awards to managers could weaken firm performance due to entrenchment effects.     

Advertising and Firm Risk: A Study of the Restaurant Industry

Incorporating recent calls for understanding firm equity risk in relation to a firm's marketing efforts, this study examined the impacts of firm-level advertising spending on firm equity risk with publicly listed firms in the restaurant industry—a key hospitality industry. This study hypothesized and tested the effects of firm-level advertising expenditures on different types of firm equity risk (i.e., total, systematic, and unsystematic risk). Unlike previous empirical findings, we found that an increase in advertising expenditures significantly increased total and unsystematic risk of sampled restaurant firms. The findings provide new insights into the effects of advertising on firm equity risk in the literature, and important theoretical and managerial implications for restaurant firms.     

Effects of within-industry diversification and related diversification strategies on firm performance

The major objective of this study was to investigate the effects of within-industry diversification and related diversification on short and long-run firm performance in the restaurant industry. Accordingly, this study decomposed Jacquemin and Berry's (1979) traditional related diversification entropy into within-industry diversification entropy and pure related diversification entropy. Further, this study examined the interaction effect of within-industry and related diversification strategies on firm performance. The results of this study suggested that in the short-run within-industry diversification strategies have a negative impact on firm profitability but no significant effect on sales growth. However, the long-run effect of within-industry diversification was significantly positive in terms of profitability but not sales growth. This study also showed that related diversification strategies had a positive and significant effect on profitability in the short-run, which turned negative and significant in the long-run. Further, the interaction model indicated that when the two strategies are simultaneously carried out synergy is quickly realized because efficiency is enhanced. A more detailed discussion of the results is provided in the main body of this paper.     

The interplay between socioemotional wealth and family firm psychological capital in influencing firm performance in hospitality and tourism

The purpose of this study is to examine the impact of family firm specific non-financial dynamics [socioemotional wealth (SEW) and family firm psychological capital (FFPsyCap)] on firm performance. We develop a model of how family firms' SEW preservation goal negatively affects firm performance in terms of sales and the mitigating influence of FFPsyCap on this association. We test the model on a sample of 192 family firms in the Hospitality and Tourism (H&T) industry. Using a cross-sectional research design, surveys were solicited from small-and-medium size hotels in Turkey. Ordinary Least Squares technique is used to test our hypotheses. The results reveal that family firms' SEW preservation goal negatively affects firm performance in terms of sales, and the FFPsyCap mitigates this influence. Accordingly, if small-and-medium size firms in H&T can capitalize on non-financial strengths and minimize the impact of family-centric goals on firm outcomes, they can attain transgenerational sustainability and success.     

Corporate governance,tourism growth and firm performance: Evidence from publicly listed tourism firms in five Middle Eastern countries

This study explores the under-researched relationship between corporate governance and firm performance in tourism companies. We employ instrumental variable modelling using 2SLS for publicly listed firms in five countries in the Middle East. Board independence is found to be positively related to firm performance and stock performance, suggesting that having independent directors among board members will improve overall firm performance. Board size shows opposing results: large boards enhance firm profitability; however, small boards exhibit more efficient stock performance. Finally, we support the tourism-led-growth hypothesis in our selected sample. These findings have empirical implications for policy makers, governments and academics.     

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.     

An examination of executive compensation in the restaurant industry

The purpose of this empirical study is to examine executive compensation in the restaurant industry. The effects of a set of accounting-based performance measures, market-based performance measures, and executive-related factors on the compensations of firm CEOs, other senior executive managers, and board members were examined. Drawn from 16 consecutive years of data and a sample of over 2200 observations from restaurant companies, the findings revealed that determinants of equity based compensation vary by different types of executives. In addition, this study supports the notion that executive compensation in the restaurant industry is determined not only by firm performance measures but also by executive-related characteristics such as tenure.     

Uncertainty risks and strategic reaction of restaurant firms amid COVID-19: Evidence from China

To contain the pandemic of coronavirus (COVID-19), social distancing, self-isolation and travel restrictions have been imposed globally. To shed light on how COVID-19 is affecting restaurant industry, this study aims to explore the factors that affect restaurant firms’ financial turnaround for their sustainability after the business shutdowns amid the COVID-19 pandemic. By utilizing a total of 86,507 small- and medium-sized restaurant firms’ sales data collected from nine cities in Mainland China, the exploratory approach of this study successfully determines positive impacts of three aspects of operational characteristics (i.e., delivery, discounts, and service type) and brand effects as uncertainty minimizing factors amid distinctive business shutdowns and restrictions. This is the first empirical study in the management realm on the impacts of COVID-19 on restaurant industry. This paper strengthens the extant literature by highlighting the impact of COVID-19 on the restaurant industry after the business restrictions are lifted.     

The Impact of Discounting Room Rates on In-House Restaurant Sales

This study investigates whether discounting hotel room rates during low seasons of demand influences in-house hotel restaurant sales in a positive way. A linear regression function was utilized to assess the relationship between discounting room rates and the hotel's in-house restaurant sales. The model summary provided results indicating that the discounting of room rates during the low season did not significantly influence in-house restaurant sales. The value of this study lies in the empirical results that may provide guidance to the revenue management practices of hotel managers.     

Advertising expenditure,intangible value and risk: A study of restaurant companies

This study investigates the relationships between advertising expenditure, intangible value, and risk in stock returns of restaurant firms between 2000 and 2005. Tobin's Q was used to examine intangible value, and the variance of common stock return was used to measure the investment risk. The results indicate that the level of advertising expenditure has a significant positive effect on the intangible value of the firm, suggesting that advertising expenditures could help generate intangible value in restaurant firms. However, this study did not support a significant relationship between the advertising expenditure level and the stock return risk of restaurant firms.