To read this content please select one of the options below:

Examining the determinants of long-term debt in the US restaurant industry: Does CEO overconfidence affect debt maturity decisions?

Kwanglim Seo (School of Travel Industry Management, University of Hawaii, Honolulu, USA)
Ellen Eun Kyoo Kim (Department of Management, California State University, Fullerton, California, USA)
Amit Sharma (School of Hospitality, Penn State University, University Park, Pennsylvania, USA)

International Journal of Contemporary Hospitality Management

ISSN: 0959-6119

Article publication date: 8 May 2017




This paper aims to find alternative explanations for the use of long-term debt in the US restaurant industry from a behavioral perspective. The three-fold purpose of the present study is to examine the impact of CEO overconfidence on the use of long-term debt; explore how CEO overconfidence moderates the relationship between growth opportunities and long-term debt; and analyze the moderating role of CEO overconfidence based on cash flow levels in the context of the restaurant industry.


Using a sample of publicly traded US restaurant firms between 1992 and 2015, this study used generalized methods of moments with instrumental variable technique to analyze the panel data.


The findings of this study highlight the importance of considering behavioral traits of CEOs, such as overconfidence to better understand the US restaurant firms’ financing behaviors. This study found that overconfident CEOs tend to use more long-term debt when firms have greater growth opportunities and low cash flow.

Practical implications

Given that psychological and behavioral features of CEOs are critical in understanding the variations in corporate financing decisions and capital structure, shareholders and boards of directors of growth-seeking restaurant firms should incorporate the behavioral aspects of overconfident CEOs in the design of long-term debt contracts to mitigate liquidation risk while developing compensation practices that encourage overconfident CEOs to finance growth.


Despite its heavy reliance on long-term debt in the US hospitality industry, prior studies provided mixed findings for the determinants of long-term debt. This study makes a contribution to the literature by offering alternative approaches to examining long-term debt decisions among US restaurant firms.



Seo, K., Kim, E.E.K. and Sharma, A. (2017), "Examining the determinants of long-term debt in the US restaurant industry: Does CEO overconfidence affect debt maturity decisions?", International Journal of Contemporary Hospitality Management, Vol. 29 No. 5, pp. 1501-1520.



Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

Related articles