Dividend and investment decisions in asymmetric information environments: evidence from the restaurant industry

Abstract

Purpose This study aims to examine how information asymmetry, which refers to an information gap between a firm’s management and its investors regarding the firm’s true value, influences firms’ dividend and investment decisions in the restaurant industry. This study also investigated the moderating role of a firm’s level of franchising in the relationship between information asymmetry and these behaviors of restaurant firms. Design/methodology/approach This study used generalized method of moments panel regression analyses. Principal component analysis was also used to create a composite index of information symmetry. Findings This study demonstrated that in asymmetric information environments, restaurant managers tend to reduce dividend payments. In addition, this study showed that information asymmetry leads to restaurant managers’ investment inefficiency. However, the investment inefficiency of the restaurant industry was found to decrease as restaurant firms’ level of franchising increases. Practical implications Firms’ dividends and investment decisions are of great interest to investors because these decisions heavily influence investors’ wealth-maximization goals. By shedding light on the previously unrecognized determinants of dividend and investment behaviors in the restaurant industry, this study helps individual investors to make informed investing decisions. Originality/value Conflicting arguments can be made regarding the impact of asymmetric information environments on the dividend and investment behaviors of restaurant firms. This study aimed to verify these as-yet unclear relationships in the restaurant industry.