New restaurants and their intra-industry effects: Evidence from Portugal

Luís Coelho

Abstract


This paper investigates the intra-industry effects resulting from the birth of a new restaurant at Portugal. Using event-study methods, this paper finds that, in the year the new competitors open for business, industry rivals experience an average abnormal loss of -17.6% in their return-on-assets, which is due to a significant decrease in their profit margin, and asset turnover ratio. Regression analysis further shows that high industry concentration, low labor productivity, and low asset profitability magnify the rivals’ underperformance, which is particularly acute when the restaurants are located at Lisboa and Porto, the two most heavily populated Portuguese cities. Overall, this paper contributes to the literature studying the economics of the eating-places industry, and has important implications for both practice, and public policy. 


Keywords


Restaurants; Intra-industry effects; Abnormal operating performance; Event-study

Full Text:

PDF

References


Agut, S., Grau, R., & Peiró, J. (2003). Competency needs among managers from Spanish hotels and restaurants and their training demands. International Journal of Hospitality Management, 22 (3), 281-295.

Akhigbe, A., Borde, S., & Whyte, A. (2003). Does an industry effect exist for Initial Public Offerings? The Financial Review, 38 (4), 531-551.

Asquith, P., Healy, P., & Palepu, K. (1989). Earnings and stock splits. The Accounting Review, 64 (3), 387-403.

Asthana, S., & Mishra, B. (2001). The differential information hypothesis, firm size, and earnings information transfer: an empirical investigation. Journal of Business Research, 53 (1), 37-47.

Barber, B., & Lyon, J. (1996). Detecting abnormal operating performance: the empirical power and specification of test statistics. Journal of Financial Economics, 41 (3), 359-399.

Braun, M., & Larrain, B. (2009). Do IPOs affect the prices of other stocks? Evidence from Emerging Markets. The Review of Financial Studies, 22 (4), 1505-1544.

Central Bank of Portugal (2011). Análise Sectorial do Alojamento, Restauração e Similares.

Retrieved April, 07, 2016 from https://www.bportugal.pt/pt-PT/ServicosaoPublico/CentraldeBalancos/Biblioteca%20de%20Tumbnails/Estudos%20da%20CB%205_2011.pdf

Conover, W. (1999). Practical Nonparametric Statistics (3rd Edition). New York: Wiley.

Cotei, C., & Farhat, J. (2013). Informational externalities of initial public offerings: Does venture capital backing matter? Journal of Economics and Finance, 37 (1), 80-99.

EU Centre in Singapore (2013). Tourism as a driver of economic growth and development in the EU?27 and ASEAN regions. Retrieved April, 07, 2016 from http://www.eucentre.sg/wp-content/uploads/2013/12/EUCResearchBrief_TourismEU27ASEAN.pdf

European Commission (2014). Annual Report on European SMEs 2013/2014 – A Partial and Fragile Recovery. Retrieved April, 07, 2016 from http://ec.europa.eu/growth/smes/business-friendly-environment/performance-review/files/supporting-documents/2014/annual-report-smes-2014_en.pdf

Firth, M. (1996). Dividend changes, abnormal returns, and intra-industry firm valuations. Journal of Financial and Quantitative Analysis, 31 (2), 189-211.

Foster, G., Olsen, C., & Shevlin, T. (1984). Earnings releases, anomalies and the behavior of security returns. Accounting Review, 59 (4), 574-603.

Gleason, C., Jenkins, N., & Johnson, W. (2008). The Contagion Effects of Accounting Restatements. The Accounting Review, 83 (1), 83-110.

Healy, P., & Palepu, K. (1990). Earnings and risk changes surrounding primary stock offers. Journal of Accounting Research, 28 (1), 25-48.

Healy, P., & Palepu, K. (1988). Earnings information conveyed by dividend initiations and omissions. Journal of Financial Economics, 21 (2), 149-176.

Hsu, H., Reed, A., & Rocholl, J. (2010). The New Game in Town: Competitive Effects of IPOs. Journal of Finance, 65 (2), 495-528.

Jorion, P., & Zhang, G. (2010). Information transfer effects of bond rating downgrades. Financial Review, 45 (3), 683-706.

Kim, S., & Upneja, A. (2014). Predicting restaurant financial distress using decision tree and AdaBoosted decision tree models. Economic Modelling, 36, 354–362.

Koys, D., & DeCotiis, T. (2015). Does a good workforce influence restaurant performance or does good restaurant performance influence the workforce? Journal of Human Resources in Hospitality & Tourism, 14 (4), 339-356.

Lang, L., & Stulz, R. (1992). Contagion and competitive intra-industry effects of bankruptcy announcements: an empirical analysis. Journal of Financial Economics, 32 (1), 45-60.

Lu, J., & Beamish, P. (2001). The internationalization and performance of SMEs. Strategic Management Journal, 22 (6-7), 565–586.

Mayer-Haug, K., Read, S., Brinckmann, J., Dew, N., & Grichnik, D. (2013). Entrepreneurial talent and venture performance: A meta-analytic investigation of SMEs. Research Policy, 42 (6-7), 1251–1273.

Murphy, K. (2007). A proposed framework for measuring human capital intangible value component in restaurant organizations using Economic Value Added. Journal of Foodservice Business Research, 10 (3), 3-23.

Pyo, Y., & Lustgarten, S. (1990). Differential intra-industry information transfer associated with management earnings forecasts. Journal of Accounting and Economics, 13 (4), 365-379 .

Ramnath, S. (2002). Investor and analyst reactions to earnings announcements of related firms: An empirical analysis. Journal of Accounting Research, 40 (5), 1351-1376.

Simpson, M., Padmore, J., & Newman, N. (2012). Towards a new model of success and performance in SMEs. International Journal of Entrepreneurial Behavior & Research, 18 (3), 264-285.

Statistics Portugal (2012). Estatísticas do Turismo. Retrieved April, 07, 2016 from https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_publicacoes

Szewczyk, S. (1992). The intra-industry transfer of information inferred from announcements of corporate security offerings. Journal of Finance, 47 (5), 1935-1945.

Tawatnuntachai, O., & D’Mello, R. (2002). Intra-Industry Reactions to Stock Split Announcements. Journal of Financial Research, 25 (1), 39–57.

Thomas, J., & Zhang, F. (2008). Overreaction to Intra-industry Information Transfers? Journal of Accounting Research, 46 (4), 909-940.

Tookes, H. (2008). Information, trading, and product market interactions: Cross-sectional implications of informed trading. Journal of Finance, 63 (1), 379-413.

White, H. (1980). A heteroskedasticity-consistent covariances matrix estimator and a direct test for heteroskedasticity. Econometrica, 48 (4), 817-838.

Zhang, G. (2010). Emerging from Chapter 11 bankruptcy: Is it good news or bad news for industry competitors? Financial Management, 39 (4), 1719-1742.






Copyright (c) 2017 Tourism & Management Studies

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.