Internationalization and accounting-based risk in the restaurant industry

Abstract

The restaurant industry has expanded into international markets remarkably well due to various benefits. However, there are also high risks involved in internationalization and it is important to consider the internationalization strategy from the risk perspective for the restaurant industry. The current study attempts to examine the relationship between restaurant firms' internationalization and accounting-based risk. This study analyzes data from U.S. restaurant firms by estimating accounting-based risk measured by the standard deviation of return on assets (ROA), and performing a Two-Way Fixed-Effects Model. The findings of this study reveal that although internationalization shows a curvilinear relationship (i.e., concave downward) with ROA risk, the major shape of the relationship may be more linear rather than curvilinear, partially explained by organizational learning theory. Restaurant firms might initially face challenges caused by inexperience in international operations in conjunction with an unfamiliar culture and may not immediately realize the risk-reduction effects. Thus restaurant executives involved in new international operations need to be very informed on risk management. This allows them to gain more confidence in pursuing internationalization strategies and ultimately enjoy the risk-reduction effects, acknowledging that more international operations can reduce restaurant firms' ROA risk in the long run. This finding provides important insights for international restaurant companies to better understand how their implementation of internationalization strategy may contribute to their firms’ accounting risks.