The Effects of Insider Ownership and Board Composition on Firm Performance in the Restaurant Industry

ABSTRACT This study aimed to investigate the relations among insider ownership, board composition, and firm performance in U.S. restaurant firms. The authors divided insider ownership into three categories: the equity ownership held per insider owners, the equity ownership held by nonexecutive (outside) directors, and the equity ownership shared by executive officers. Board composition was represented by board independence, board size, and chief executive officer duality. For data analysis, the authors conducted 319 observations from 31 firms. The authors found that 3 categories of insider ownership and board composition variables differently influence short-term operational profitability and long-term value. Managerial ownership negatively influences short-term profitability, whereas long-term value is affected not only by managerial ownership but also by a balanced dispersion of shares to each owner. Dual chief executive officers do not affect short-term profitability but negatively influence long-term value. The study findings provide more comprehensive understanding of the effect of the corporate governance system on firm performance in the restaurant industry.