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

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  • Jiyoung Kim
  • David Woods
  • Hyunjoon Kim

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.

Suggested Citation

  • Jiyoung Kim & David Woods & Hyunjoon Kim, 2013. "Identifying the Financial Characteristics of Cash-Rich and Cash-Poor Restaurant Firms: A Logistic Regression Analysis," Tourism Economics, , vol. 19(3), pages 583-598, June.
    • Handle: RePEc:sae:toueco:v:19:y:2013:i:3:p:583-598
    DOI: 10.5367/te.2013.0217
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    References listed on IDEAS

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    Cited by:

    1. Elyasiani, Elyas & Movaghari, Hadi, 2022. "Determinants of corporate cash holdings: An application of a robust variable selection technique," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 967-993.
    2. Michaël Dewally & Susan M.V. Flaherty & Yingying Shao, 2017. "Determinants of financial policy in the hospitality sector in the United States," Tourism Economics, , vol. 23(3), pages 523-542, May.
    3. Mahboubeh Bahreini & Cahit Adaoglu, 2018. "Dividend payouts of travel and leisure companies in Western Europe," Tourism Economics, , vol. 24(7), pages 801-820, November.
    4. Douglas C. Frechtling & Tadayuki Hara, 2016. "State of the world’s tourism statistics and what to do about it," Tourism Economics, , vol. 22(5), pages 995-1013, October.
    5. Kwanglim Seo & Jungtae Soh & Amit Sharma, 2018. "Do financial constraints affect the sensitivity of investment to cash flow? New evidence from franchised restaurant firms," Tourism Economics, , vol. 24(6), pages 645-661, September.
    6. Kwangmin Park & SooCheong (Shawn) Jang, 2019. "Cash regimes and the franchise system: An extension of the marginal value of cash," Tourism Economics, , vol. 25(2), pages 235-252, March.
    7. Ilker Yilmaz, 2022. "Leverage and Investment Cash Flow Sensitivity: Evidence from Muscat Securities Market in Oman," SAGE Open, , vol. 12(3), pages 21582440221, August.

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