Increased interest expense and management’s expense preference behaviour of publicly-traded restaurant firms

The purpose of this research was to examine whether or not firms in a less-regulated industry with high competition exhibit expense preference behaviour, originally posited by Williamson (1963) with regards to interest expense. We used the restaurant industry to examine this issue because the restaurant industry is very sensitive to changes in market conditions due to its low profit margin. Interest expenses are exogenously determined and can have a serious impact on the profitability of the restaurant firms. The major finding of this paper shows that \u27other expenses\u27 increase along with interest expense. Managers do exhibit expense preference behaviour