The Monitoring Effects of Debt in the U.S. Restaurant Industry

Document Type

Article

Publication Date

1-1-2020

Publication Title

Journal of Hospitality Financial Management

Volume

28

Issue

2

First page number:

1

Last page number:

10

Abstract

© 2020 International Association of Hospitality Financial Management Education. The issuance of debt is a monitoring mechanism. Whether the debt is from a private lender or is in the form of publicly traded bonds, both types of lenders expect a return on their money (Jensen, 1986). Thus, while finding ways to increase sales is important, the control of expenses is paramount to the success of the firm and to be able to borrow more funds in future. Using data from 111 restaurant firms for the 2009–2018 period, this study examines whether the use of debt by U.S. restaurant companies is an effective monitoring agent and if it helps firm performance. Results reveal a significant relationship between a restaurant firm’s expense ratio and its short-term, long-term, and total debt ratios after controlling for firm size, economic cycles, and franchising. As such, the phenomenon of debt relevance in the restaurant sector is better understood.

Keywords

Capital structure; Debt; Monitoring effects; Restaurant industry

Disciplines

Hospitality Administration and Management

Language

English

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