New restaurants and their intra-industry effects: evidence from Portugal

• Main Author: Luís Miguel Serra Coelho
• Format: Article
• Language: English
• Published: University of the Algarve - ESGHT - CIEO 2017-01-01
• Series: Tourism & Management Studies
• Subjects: restaurants; intra-industry effects; abnormal operating performance; event-study
• Online Access: https://tmstudies.net/index.php/ectms/article/view/897/pdf_46

This paper investigates the intra-industry effects resulting from the birth of a new restaurant at Portugal. Using event-study methods, this paper finds that, in the year the new competitors open for business, industry rivals experience an average abnormal loss of -17.6% in their return-on-assets, which is due to a significant decrease in their profit margin, and asset turnover ratio. Regression analysis further shows that high industry concentration, low labor productivity, and low asset profitability magnify the rivals’ underperformance, which is particularly acute when the restaurants are located at Lisbon and Oporto, the two most heavily populated Portuguese cities. Overall, this paper contributes to the literature studying the economics of the eating-places industry, and has important implications for both practice, and public policy