Risk return and cost of equity of small and large casual-dining restaurants

Abstract

Although the financial performance of US casual-dining restaurants has been better than returns in other restaurant segments, it is not known how large and small casual-dining restaurant companies perform when their stock returns are adjusted for risk. The present study uses traditional and contemporary risk-adjusted performance and cost of equity models to fill the void in this area of research. The results indicate that large casual-dining restaurants outperformed their smaller counterparts on a risk-adjusted basis, and had a lower cost of equity for the 1998-2002 period. In addition, the findings demonstrate that the cost of equity estimates pose some serious challenges when sub-periods before and after September 11 events are included in the analysis. © 2007 Elsevier Ltd. All rights reserved.