The effect of board classification in the restaurant industry

Joonho Moon, Amit Sharma

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Previous literature suggests that classified boards of directors could impact firm performance in the context of firm-specific characteristics. In continuation of this discussion, this study investigates the effect of classified boards on firm value in the restaurant industry. Even though classified boards can reduce firm value because of higher monitoring costs, existing literature argues that classified boards are devoted to protecting investors and shareholders against opportunistic bids, which in turn increases their debt financing capabilities. Data from U.S. restaurant firms was analyzed by Compustat and RiskMetrics from 2007-2011 to investigate whether classified boards impact firm value in the restaurant industry. Our results indicate that classified boards of directors lower the value destruction of restaurant firms in terms of cost of debt. That is, cost of debt is lower in classified board firms, thereby reducing their negative impact on firm value. The implications and limitation of this research are also discussed.

Original languageEnglish (US)
Pages (from-to)32-40
Number of pages9
JournalJournal of Hospitality Financial Management
Volume22
Issue number1
DOIs
StatePublished - Jan 1 2014

Fingerprint

industry
debt
cost
firm
effect
Restaurant industry
Firm value
monitoring
Board of directors
Restaurants
Cost of debt
Debt financing
Bid
Firm-specific characteristics
Firm performance
Shareholders
Monitoring costs
Investors

All Science Journal Classification (ASJC) codes

  • Finance
  • Tourism, Leisure and Hospitality Management
  • Strategy and Management

Cite this

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The effect of board classification in the restaurant industry. / Moon, Joonho; Sharma, Amit.

In: Journal of Hospitality Financial Management, Vol. 22, No. 1, 01.01.2014, p. 32-40.

Research output: Contribution to journalArticle

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