Which Sets of Corporate Governance Factors lead to high Going-private Returns for the U.S. Restaurant Firms?
Disciplines
Hospitality Administration and Management
Abstract (300 words maximum)
The restaurant industry plays an important role in the U.S. economy that contributes almost 1 billion dollars in sales and generates 12 million jobs. However, in the last two decades, numerous publicly-traded restaurant firms opted to transit to private ownership. Generally, following the going-private announcement, companies tend to enjoy positive abnormal stock returns (i.e., bid premiums). Madanoglu and Karadag (2009) identified four firm characteristics that influence these bid premiums. However, based on the logic of equifinality, there exists a need to understand how bundles of factors lead to high financial performance. Therefore, this research aims at finding which configurations of corporate governance conditions result in high bid premiums. The sample of this study consists of approximately 50 restaurant companies that made going-private announcements between 2005 and 2019. Transactional data from the SEC Annual Filings and the Center for Research in Security Prices (CRSP) are collected. Cumulative Abnormal Returns (CARs) were estimated with EVENTUS software and used as bid premiums. The four conditions in this study are firm age, franchising (vs. non-franchising firms), independent directors (ratio to total directors), and CEO duality (dual vs. not). A crisp-set Qualitative Comparative Analysis (QCA) method is utilized to determine which conditions are sufficient for high bid premiums. Findings indicate two paths that lead to high bid premiums. The first bundle of conditions includes older (established) companies that do not franchise and have non-dual CEOs, and a high ratio of independent directors. The second model consists of established, franchising firms, with a high ratio of independent directors. Thus, the presence of old firms and firms with a high ratio of independent directors appear in both solutions. This research aims to potentially guide restaurant firms in adopting the right combinations of governance provisions that drive financial performance and enhance sustainable business practices.
Academic department under which the project should be listed
CCOB - Management, Entrepreneurship & Hospitality
Primary Investigator (PI) Name
Dr. Melih Madanoglu
Which Sets of Corporate Governance Factors lead to high Going-private Returns for the U.S. Restaurant Firms?
The restaurant industry plays an important role in the U.S. economy that contributes almost 1 billion dollars in sales and generates 12 million jobs. However, in the last two decades, numerous publicly-traded restaurant firms opted to transit to private ownership. Generally, following the going-private announcement, companies tend to enjoy positive abnormal stock returns (i.e., bid premiums). Madanoglu and Karadag (2009) identified four firm characteristics that influence these bid premiums. However, based on the logic of equifinality, there exists a need to understand how bundles of factors lead to high financial performance. Therefore, this research aims at finding which configurations of corporate governance conditions result in high bid premiums. The sample of this study consists of approximately 50 restaurant companies that made going-private announcements between 2005 and 2019. Transactional data from the SEC Annual Filings and the Center for Research in Security Prices (CRSP) are collected. Cumulative Abnormal Returns (CARs) were estimated with EVENTUS software and used as bid premiums. The four conditions in this study are firm age, franchising (vs. non-franchising firms), independent directors (ratio to total directors), and CEO duality (dual vs. not). A crisp-set Qualitative Comparative Analysis (QCA) method is utilized to determine which conditions are sufficient for high bid premiums. Findings indicate two paths that lead to high bid premiums. The first bundle of conditions includes older (established) companies that do not franchise and have non-dual CEOs, and a high ratio of independent directors. The second model consists of established, franchising firms, with a high ratio of independent directors. Thus, the presence of old firms and firms with a high ratio of independent directors appear in both solutions. This research aims to potentially guide restaurant firms in adopting the right combinations of governance provisions that drive financial performance and enhance sustainable business practices.