CEO Overconfidence and the Effects of Equity-Based Compensation on Strategic Risk-Taking in the U.S. Restaurant Industry

Kwanglim Seo, Amit Sharma

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

The purpose of this study was to investigate (a) the moderating effect of CEO overconfidence on the relationship between equity-based compensation and strategic risk-taking and (b) the relationship between franchising and strategic risk-taking in the U.S. restaurant industry. Given wide use of a franchise system among U.S. restaurant firms, an understanding of the association between equity-based compensation and strategic risk-taking relative to CEOs’ risk behaviors seems particularly important. We conducted our empirical analysis in the U.S. restaurant industry using a sample of 659 firm-year observations from 1992 to 2013. Our findings showed that (a) overconfident CEOs, while holding equity-based compensation, tended to take on more strategically risky investments, and (b) there was a positive relation between franchising and risk-taking. Considering the behavioral and industry-specific characteristics, study findings could provide a more comprehensive understanding of how equity-based compensation influences strategic risk-taking in the U.S. restaurant industry.

Original languageEnglish (US)
Pages (from-to)224-259
Number of pages36
JournalJournal of Hospitality and Tourism Research
Volume42
Issue number2
DOIs
StatePublished - Feb 1 2018

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All Science Journal Classification (ASJC) codes

  • Education
  • Tourism, Leisure and Hospitality Management

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