Institutional Investors and International Diversification in the U.S. Restaurant Industry

ABSTRACT

Although U.S. restaurant firms face high risks in diversifying their operations internationally, there are no previous studies that motivate international diversification. If international diversification is risky, then why do restaurant firms go abroad? This study focuses on one potential explanation, namely the institutional investor ownership, to determine if it can explain the internationalization behavior in the restaurant industry. According to previous research, ownership by pressure-sensitive groups (bank and insurance firms) is negatively related to international diversification and ownership by pressure-resistant groups (pension funds, mutual funds, and brokerage firms) is positively related to international diversification. The results for restaurant firms reported in this study partially confirm previous findings. While pension and mutual fund firms support international diversification, pressure from investments by banking firms leads to lower international diversification. Investments from insurance firms are not related to international diversification, and investments by brokerage firms are negatively related to internationalization.