Identifying the Financial Characteristics of Cash-Rich and Cash-Poor Restaurant Firms: A Logistic Regression Analysis

Jiyoung Kim, David Woods and Hyunjoon Kim

Tourism Economics, 2013, vol. 19, issue 3, 583-598

Abstract: This study identifies the financial characteristics that tend to distinguish cash-rich from cash-poor publicly traded US restaurant firms operating in the 1999–2010 period. The resulting logistic regression model, developed from a forward stepwise selection procedure, is able to classify sampled firm-year observations into cash-poor and cash-rich groups with a 73.4% accuracy rate. The authors find that cash-rich restaurant firms tend to have greater investment opportunities, which make cash in hand appealing. However, cash-poor restaurants are more likely to be larger, to hold more liquid-asset substitutes, to make greater capital expenditures and to display more robust cash flows – characteristics that enhance borrowing power and/or reduce the need to hoard funds. Hence, the findings suggest a prominent role for the precautionary and transaction motives in restaurant cash-holding decision making.

Keywords: cash-holding levels; financial characteristics; precautionary motive; restaurant firms; trade-off theory; transaction motive (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:19:y:2013:i:3:p:583-598

DOI: 10.5367/te.2013.0217

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