Calorie labeling law and fast food chain performance: The value of capital responsiveness under sales volatility

Abstract

With increasing health consciousness around calorie intake, we assess the influence of calorie labeling law on the stock market performance of publicly-traded fast-food chains. Using the Food and Drug Administration’s (FDA’s) final calorie labeling guidelines released on May 5, 2016, as the main event, we assess the cumulative abnormal return (CAR) of fast-food chains. Prior studies have focused on consumer behavior changes following the regulation; yet, the aggregate effects of the law on the financial outcomes remain unexplored. Our findings suggest that the regulation may not have had a significantly negative financial impact on publicly traded firms in the retail food industry. We found that publicly traded firms in the retail food industry with higher sales volatility in the past experienced a negative CAR while firms with high historic sales volatility accompanied by high levels of investment responsiveness – signaling of responsiveness to such laws – had a positive CAR.