Forces Driving the Growth of the Restaurant Industry in the USA

Abstract

Purpose– The primary purpose of this study is to identify the drivers of the annual growth for publicly traded restaurant firms in the USA. Design/methodology/approach– Built on previous research, the study constructs an econometric model to systematically investigate growth drivers of the restaurant industry using data from publicly traded restaurant firms in the USA. Findings– Annual changes in size and market share were found to be positively and significantly related to restaurants\u27 one‐year ahead annual growth. In addition, the annual change of leverage is negatively and significantly related to this growth. However, annual changes in book to market, market risk premium, as well as earnings growth fail to exhibit significance, controlling for franchising, internationalization, and year effects. Research limitations/implications– Results may not be directly generalizable to all restaurant firms at large, considering that the sample is drawn from only publicly traded restaurant firms. In addition, there may be certain variables that the study did not directly observe but which influence firms\u27 growth. Exploring a combination of both financial and nonfinancial variables may shed more light on the growth issue, especially with a more comprehensive data set. Practical implications– The paper recommends that restaurant executives should focus on market share, size, leverage, and franchise to improve the annual sales growth for the following year in addition to market risk premium. Originality/value– The study attempts to provide, for the first time, systematic financial evidence about growth drivers of the restaurant industry employing representative secondary data from publicly traded restaurant firms. Understanding the driving forces behind the growth of the restaurant firms is of great importance to investors, financial analysts and management