The impact of board composition on firm performance in the restaurant industry

Abstract

PurposeThis study aimed to investigate the impact of the board composition on financial performance in the restaurant industry from a stewardship theory perspective.Design/methodology/approachThe composition of board was measured as the ratio of inside and outside directors. Firm performance was operationalized as return on assets (operational performance) and Tobin’s q (market-based performance). Panel regression analysis tested the research hypotheses.FindingsUsing data from 25 restaurant firms from 2007 to 2013, the study found an insignificant impact of board composition on operational performance. However, a higher proportion of inside board members increases market-based performance. A higher proportion of outside board members decreases market-based performance.Practical implicationsSupporting the basic tenets of stewardship theory, restaurant companies may consider changing the current practice of having a super-majority of outside directors and increase the inside board members. Because inside board member have greater experience with the organization and the industry, they have a better understanding of the status quo and are better able to respond to opportunities and threats in the environment.Originality/valueConsidering the scarcity of research on how the board composition affects firm performance in the hospitality context, the present study is a forerunner in its exploration of the impact of inside and outside directors on restaurant firms’ performance.