Increased Interest Expense and Management’s Expense Preference Behavior of Publicly-Traded Restaurant Firms

Publicly traded restaurant firms typically have low profit margins due to high cost of goods and labor. Any expense increases can have a significant impact on profits and managers need to deal with these increases. Expense preference behavior states that managers are more inclined to spend than to maximize profits. We are interested in determining whether or not restaurant managers exhibit expense preference behavior when interest expense increases. Results of the regression analysis show that interest expense and other expenses are positively correlated and hence move in the same direction, which could be a signal for expense preference behavior