Cross-balance sheet interdependencies of restaurant firms: a canonical correlation analysis

Using canonical correlation analysis, this study examined the interdependencies in investing and financing decisions of restaurant firms. The results indicated that the similar four cross-balance sheet interdependencies exist in the restaurant industry as identified by previous studies for different industries and companies in various countries: (1) maturity matching structure of assets and liabilities, (2) use of long-term assets as collateral for long-term debt, (3) use of accounts payable to finance operational assets (e.g., inventories and other current assets), and (4) concurrent use of cash and stockholders’ equity to manage risk. Additionally, this study discovered the unique financing features of the restaurant industry: (1) restaurant firms did not relate account receivables to short-term liabilities, and (2) they financed their operational assets with stockholders’ equity in addition to account payable. The findings are expected to contribute to the understanding of restaurant financing behavior as related to assets structures. This study also demonstrated the usefulness of canonical correlation analysis in extracting information related to financial management strategy.