Early warning indicators? The effect of consumer and investor sentiments on the restaurant industry

• Published in: International journal of hospitality management 2020-08, Vol.89, p.102575, Article 102575
• Main Authors: Yost, Elizabeth, Ridderstaat, Jorge, Kizildag, Murat
• Format: Article
• Language: English
• Subjects: Co-integration; Consumer confidence index (CCI); Cycles; Restaurant performance index (RPI); Volatility index (VIX)
• ISSN: 0278-4319; 1873-4693
• DOI: 10.1016/j.ijhm.2020.102575

•The purpose of the study is to look at the influence of cyclical fluctuations of the consumer confidence index (CCI) and the volatility index (VIX) as early-warning indicators of the variations in restaurant performance.•The industry has traditionally focused on past data and on microeconomic influences to anticipate its future performance, a procedure that does not consider possible cyclical fluctuations in restaurant performance metrics.•The results show both indicators have an effect on restaurant performance, where VIX has an impact on the current, expected, and overall restaurant performance, while the CCI’s influence is only partial (current performance).•Theoretically, this study applies behavioral theories to consumer spend patterns in the restaurant industry. Prior research has not made this link, and so this study fills a critical gap in the literature.•Practically, this study provided empirical evidence that illustrates how proxy measurements of fear and confidence drive firm performance. This study looks at the influence of cyclical fluctuations of the consumer confidence index (CCI) and the volatility index (VIX) as early-warning indicators of the variations in restaurant performance. The industry has traditionally focused on past data and on microeconomic influences to anticipate its future performance, a procedure that does not consider possible cyclical fluctuations in restaurant performance metrics. These fluctuations are driven by sentiments of consumers and investors. The study uses the cyclical component of the applied data, followed by unit root and cointegration testing, with subsequent application of the Limited Information Maximum Likelihood technique. The results show both indicators have an effect on restaurant performance, where VIX has an impact on the current, expected, and overall restaurant performance, while the CCI’s influence is only partial (current performance). Policy-makers and planners could benefit from anticipating features of indicators to assess and steer the future performance of the restaurant industry.