Do investors reward restaurant firms that go abroad?

Abstract

Purpose

The purpose of this paper is to investigate, empirically, the value relevance of the degree of internationalization in publicly traded restaurant firms in the USA.

Design/methodology/approach

Data for the study were obtained from the Compustat Industrial Annual. Pearson correlation analysis, regression analysis, and Vuong's Z‐test were employed to analyze the data.

Findings

The paper has two principal findings: the degree of internationalization is positively and significantly related to market capitalization; and the relation is strong enough to cause an 18.3 percent increase in the explanatory power, in the presence of control variables.

Research limitations/implications

The method of expansion might have some impact on market capitalization and this is not explicitly controlled for in the study due to data and cost constraints. Moreover, there are likely other variables affecting firms' market capitalization, but due to data constraints, they are also not included in the model.

Practical implications

The results indicate firms, which decide to diversify abroad, see their market capitalization changes positively with the degree of internationalization.

Originality/value

There are many studies that investigate the behavior of firms that diversify abroad; however, this is the first study to the authors' knowledge that examines the impact of the degree of internationalization on the stock market capitalization in the hospitality industry.

Citation

Hua, N. and Upneja, A. (2011), "Do investors reward restaurant firms that go abroad?", International Journal of Contemporary Hospitality Management, Vol. 23 No. 2, pp. 174-188. https://doi.org/10.1108/09596111111119310