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The impact of board composition on firm performance in the restaurant industry: A stewardship theory perspective

Abstract:

Purpose: This study aimed to investigate the impact of the board composition on financial performance in the restaurant industry from a stewardship theory perspective. Design/methodology/approach: The 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. Findings: Using 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 implications: Supporting 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/value: Considering 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.