CEO Overconfidence and the Effects of Equity-Based Compensation on Strategic Risk-Taking in the U.S. Restaurant Industry

Abstract

The purpose of this study was to investigate (a) the moderating effect of CEO overconfidence on the relationship between equity-based compensation and strategic risk-taking and (b) the relationship between franchising and strategic risk-taking in the U.S. restaurant industry. Given wide use of a franchise system among U.S. restaurant firms, an understanding of the association between equity-based compensation and strategic risk-taking relative to CEOs' risk behaviors seems particularly important. We conducted our empirical analysis in the U.S. restaurant industry using a sample of 659 firm-year observations from 1992 to 2013. Our findings showed that (a) overconfident CEOs, while holding equity-based compensation, tended to take on more strategically risky investments, and (b) there was a positive relation between franchising and risktaking. Considering the behavioral and industry-specific characteristics, study findings could provide a more comprehensive understanding of how equity-based compensation influences strategic risk-taking in the U.S. restaurant industry.

The impact of manager’s demographic characteristics on prospector strategy, use of management accounting systems and financial performance

“…Upper managers are less oriented towards big changes in organizations because of great level of risks. Especially, managers of higher ages are not capable for risky strategies (Seo & Sharma, 2018) because they have been reduced their ability to assess new ideas quickly and integrated to make decisions to actions (Hambrick & Mason, 1984). In contrast, younger upper managers have propensity to take risk and tend to implement new projects that can promote their careers in the future (Finkelstein et al, 1996).…”

Cost-Effective Service Excellence: Exploring the Relationships Among Restaurants’ Operational Efficiency, Size and Service Quality

“…Accordingly, restaurant quality should not be simplified and/or reduced to the importance of just one (the most important) quality dimension (as in our case of Assurance). Restaurant quality management must be in line with restaurant micro, small and mediumsized enterprises' (SMEs') strategic planning (Seo and Sharma 2018), as it also embraces other management functions, such as human resources (HR) management (Durrani and Rajagopal 2016), marketing management (Kukanja, Gomezelj Omerzel, and Kodrič 2017), revenue management (Mun and Jang 2018), image and physical environment (Han and Hyun 2017), and efficiency management. This study's empirical findings also provide a new understanding of restaurant quality and efficiency management.…”

Management Characteristics and Corporate Risk-taking: An Overall Review

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