The impact of material and immaterial sustainability on firm performance: The moderating role of franchising strategy

Tourism Management 77 (2020) 103999

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The impact of material and immaterial sustainability on firm performance: The moderating role of franchising strategy

T

Bora Kima,∗, Seoki Leeb,c a

School of Hospitality Management, The Pennsylvania State University, 211 Mateer Building, University Park, PA 16802, United States School of Hospitality Management, The Pennsylvania State University, 217 Mateer Building, University Park, PA 16802, United States c College of Hotel and Tourism Management, Kyung Hee University, Seoul, South Korea b

ARTICLE INFO

ABSTRACT

Keywords: Sustainability Materiality Stakeholder theory ESG factors Corporate social responsibility Restaurant industry

CSR and sustainability engagement is growing rapidly with ever-increasing attention. Accordingly, restaurant stakeholders now demand restaurant companies to disclose relevant ESG information (i.e., materiality) to analyze risks and opportunities that ESG factors bring to firms over the long term. As established in stakeholder theory, restaurant materiality is shaped by a firm's key stakeholders and also by the industry's distinguishing factor, franchising. However, despite their importance and timeliness, materiality and franchising remain largely absent from scholarly discussion in the field of tourism and hospitality. Using a novel industry-specific materiality classification of sustainability initiatives, here we show that franchising positively moderates the impact of investing in immaterial sustainability on firm performance. The results provide early empirical validation of stakeholder theory in relation to restaurant materiality and franchising, and show the impact of allocating a firm's resources to material and immaterial sustainability issues on firm performance in the restaurant context.

1. Introduction The investment decisions of a firm prescribe how productive the firm is (Dempsey, 2003). One particular type of investing strategy gaining ever-increasing attention from stakeholders in the contemporary business environment is sustainability investing. Sustainable investing, which incorporates environmental, social, and governance (ESG) factors, has increased fourteen-fold in the United States since 1995 (US SIF, 2016). Over that same timespan, the total net assets of ESG funds and community investing institutions of professionally managed assets in the U.S. market has increased from $12 billion to $8.1 trillion by 2016 (U.S. US SIF, 2016). As ESG factors develop over time, institutional investors and asset managers analyze them in an attempt to discern appealing companies that are worth investing in. As a result, more firms are now incorporating ESG principles into their financial analysis and portfolio development. In many cases, firms that consider ESG factors and practice sustainability are thought to boast superior management practices, impose fewer risks on investors, and lessen demands from other stakeholders (US SIF, 2016). Accordingly, many investors and other stakeholders now demand companies to disclose important and relevant ESG information to analyze risks and opportunities that ESG factors bring to firms over the ∗

long term (US SIF, 2016). This concept is known as materiality, for which GRI defines as “aspects that reflect the organization's significant economic, environmental and social impacts or substantively influence the assessments and decisions of stakeholders” (GRI, 2015, p.6). Simply put, materiality entails the proper disclosure of important information that can potentially affect investors' and other stakeholders' decisions to buy, sell, or hold a security. Immateriality, on the other hand, is information that is of less importance. As noted in the definition of GRI, materiality is entity-specific; therefore, what is material can differ for each industry and amongst individual companies within that industry. However, identifying what is material in terms of CSR/sustainability for an individual company without any reference can be a highly complex task (Lo, 2010). Recognizing this challenging issue, the Sustainability Accounting Standards Board (SASB) has created a novel industry-specific Materiality Map for 79 industries across 10 sectors. Incorporating SASB's materiality topics for the restaurant industry, the current study investigates how activity in each area affects firm performance by categorizing CSR into material and immaterial activities. In addition, franchising, the critical moderator in the restaurant context is examined. Over the last few decades, franchising strategy has increased in popularity in various industries across countries (Welsh, Alon, & Falbe, 2006). As of 2017, the franchising business is projected

Corresponding author. E-mail addresses: [email protected] (B. Kim), [email protected] (S. Lee).

https://doi.org/10.1016/j.tourman.2019.103999 Received 24 October 2018; Received in revised form 20 August 2019; Accepted 18 September 2019 0261-5177/ © 2019 Elsevier Ltd. All rights reserved.

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to grow to over 700 billion dollars transcending the growth rate of the overall economy and contributing to job creation (Maze, 2017). As one of the industries in which the franchising strategy is the most extensively adopted (Koh, Lee, & Boo, 2009), franchising creates additional groups of stakeholders, namely franchisees, employees of franchisees, local communities and governments of where they operate, for restaurant firms. Accordingly, the greater the amount of franchising, the larger the involvement of such various stakeholder groups, which can lead to a more pronounced influence of (im)materiality on firm performance, as (im)materiality can be interpreted differently by each stakeholder and hence to each firm. However, despite their importance and timeliness, materiality and franchising remain largely absent from scholarly discussion in the field of tourism. Incorporating the novel Materiality Map together with widely-accepted MSCI ESG database, this study aims to accomplish the following goals: (1) investigate the relationship between material and immaterial as it pertains to sustainability activity and firm performance, and (2) examine franchising as a potential moderator to better explain the materiality-performance link. While providing one of the first empirical evidence to stakeholder theory in relation to restaurant materiality and franchising, our findings suggest that a more intensive use of franchising leads to increased stakeholder interests and involvement as additional stakeholders are more likely to judge topics which are classified as material per SASB as immaterial, which could in turn increase the impact of investing in immaterial sustainability on firm performance. This study reviews relevant literature and examples pertaining to CSR, materiality, and franchising in the next section and is followed by detailed description on our data and methodology. Interpretations and discussion about the results and the implication are provided and some important future directions conclude the final section.

resource practices, reputation, brand, and risk performance (Luo & Bhattacharya, 2009). Researchers have also shown that high corporate social performance can enhance non-financial performance, such as reputation and attractiveness for prospective employees (Turban & Greening, 1997), as well as industrial brand equity and brand performance (Lai, Chiu, Yang, & Pai, 2010). Although the positive association between CSR/sustainability and financial performance has been relatively well established in the previous literature as it pertains to stakeholder theory, the research findings amount to an inconclusive body of empirical evidence pointing toward no particular unilateral relationship. Using measures such as security analyst earnings forecasts and return on sales, some scholars have found a negative association between environmental CSR and firm performance (Bansal, 2005; Sarkis & Cordeiro, 2001), which is in accordance to Friedman's (1970) shareholder-focused view of CSR. Other researchers have found a non-linear relationship between CSR and firm financial performance (Barnett & Salomon, 2006; Trumpp & Guenther, 2017), and even a neutral effect of CSR on firm performance (McWilliams, 2000). The inconsistent findings are persistently salient in the restaurant industry. The positive CSR activities of U.S. restaurant firms have been found to increase firm value when measured by price-to-earnings (P/E) ratio and Tobin's q (Kang, Lee, & Huh, 2010; Kim & Kim, 2014). Using a sample of hotels in Spain, Segarra-Oña, Peiró-Signes, Verma, and MiretPastor (2012) found that hotel firms that proactively engaged in environmental management such as ISO 14001 showed significantly positive economic performance in terms of EBIT and EBITDA. More recently, Jang, Zheng, and Bosselman (2017) surveyed top managers of restaurants in the U.S. and showed that environmental sustainability significantly influences firm financial (e.g., total gross profit, ROI) and non-financial (e.g., employee and customer satisfaction, motivation and retention) performance. Other scholars have found an insignificant effect of CSR activities on total shareholder return (Park & Lee, 2009) and on the P/E ratio and Tobin's q (Kang et al., 2010) while finding a curvilinear effect on return on equity (Park & Lee, 2009). The reasons for the equivocal findings surrounding CSR/sustainability and firm performance are often attributed to differences in choices of measurement (Galant & Cadez, 2017). The restaurant CSR literature above differ from each other not only in terms of performance measures, but also in how the researchers designed relevant CSR measures. Park and Lee (2009) employed a single composite CSR measure (i.e., non-differentiated compounded CSR dimensions of environmental, social, governance, and controversial business activities that consist of KLD CSR database), while Kang et al. (2010) divided these CSR dimensions into positive and negative dimensions. More recently, Inoue and Lee (2011) investigated different impacts of each ESG dimensions in tourism-related industries, but critical industry-specific factor such as franchising has not been considered for the restaurant industry.1 In this study, we suggest that the inconclusive findings may have been caused partly by combining material and immaterial CSR/sustainability dimensions together in their examinations. Therefore, unlike the previous literature where CSR activities were divided into positive and negative or simply a combination of the two, this study proposes a new approach to the dichotomy in the tourism and hospitality literature. That is, the identification and examination of material and immaterial CSR/sustainability dimensions separately may reveal a fresh perspective on CSR literature and meaningful findings in the restaurant context. As stated earlier, using the SASB industry-specific materiality classification guides us in identifying material and immaterial CSR/ sustainability topics specifically for the restaurant industry. Taking this approach is discreet in that the definition of CSR may differ across

2. Literature review 2.1. CSR and firm performance The restaurant industry plays an important role in consumers' wellbeing in everyday life, and is no exception to recognizing increasing concerns for CSR/sustainability issues. For example, customers increasingly seek to patronize restaurants that serve locally-sourced food and engage in CSR/sustainability initiatives, while restaurants search for waste reduction measures to lower operating costs and reduce negative effects on the environment (National Restaurant Association, 2015). Due to its hedonic nature and direct link to food and human health, it is particularly important for restaurants to reveal CSR- and sustainability-related materiality in the restaurant industry. The effect of CSR/sustainability on firm performance has been subject to considerable attention of empirical inquiries. Stakeholder theory has been one of the most widely applied perspectives in the CSR literature (Theodoulidis, Diaz, Crotto, & Rancati, 2017), where stakeholders are defined as an individual or group that can influence or is affected by the accomplishment of the organization's goal (Freeman, 1984, p. 46), and viewed as the intertwined influential bodies in a firm's value creating activities that impact the way a firm is managed and behaves (Perrini & Tencati, 2006). Accordingly, a firm's capability to continue to operate not only depends on its shareholders (Freeman, Harrison, Wicks, Parmar, & De Colle, 2010), but is also determined by its relationship with other stakeholders (Perrini & Tencati, 2006). Therefore, it is prudent for a firm to take its various stakeholders' interests into account and invest in domains that bring benefits to those stakeholders. In this sense, CSR/sustainability investment will be regarded as an efficient use of resources by multiple stakeholders. In fact, previous literature found that a firm's high CSR/sustainability performance can have a positive effect on financial performance (Eccles, Ioannou, & Serafeim, 2012; Waddock & Graves, 1997) as well as superior non-financial performance, such as improved human

1 A more detailed description of the MSCI KLD database is provided in the Data collection section.

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industries, and the influence of CSR on firm performance may depend on industry characteristics and norms regarding moral and ethical issues (Lee, Park, & Lee, 2013). Moreover, a key contextual factor for the restaurant industry, that is franchising, is also incorporated in this study. In fact, the early study by Vance (1975), using the mining and manufacturing sector as a sample, showed that investors demonstrated different levels of sensitivity regarding dimensions of CSR; that is, the investors were more conscious of employee-related CSR than environment-related CSR in the industry. Therefore, given that the importance of each CSR/sustainability items varies by industry, it is more reasonable to conduct an industry-focused analysis to evaluate firm CSR/ sustainability efforts in a way that reflects the relevance and significance of relevant topics.

materiality management in the restaurant industry. In addition, mimetic processes also explains the expectation of firms' taking material sustainability issues first over immaterial issues. In risky and competitive restaurant industry's business environment, restaurant managers regards those recommended or best practices in the industry as valid and justifiable. Accordingly, in decision-making process regarding sustainability initiatives, those material topics suggested by SASB will likely be given attentions and priorities by managers and stakeholder groups including shareholders based on the logic of institutional legitimacy. With published guidelines such as SASB's, restaurant firms can have a reference in pursuit of efficient and strategic sustainability investment decisions. Outperforming in those material sustainability activities may likely give a focal firm some competitive advantage such as access to capital sources including ESG investment or it may help a focal firm avoid competitive disadvantage by falling behind the curve of the materiality management. Therefore, a positive effect of investment in material CSR/sustainability activities is expected and the following Hypothesis is proposed in the current study.

2.2. Materiality and firm performance Potential investors and financial markets assess a firm's productivity by looking at how a firm utilizes its capital and, thus, the investment decisions a firm makes (Dempsey, 2003). Specifically, in line with resource-based view (Barney, 2001), if a firm chooses to invest its resources in material (i.e., perceived to be relatively more important to asset managers, top management teams, and other stakeholders) CSR/ sustainability issues, it will be viewed as more efficient compared to firms making investments in topics that are immaterial. This is because such investments in more relevant and impactful stakeholder issues of the industry show the firm understands what is more important to their business in a given industry and can be interpreted as a superior managerial insight into risk management skills by investors (Anderson & Anderson, 2009). Given its well-known competitiveness, high business risks and tight profit margins of the restaurant industry (Kim, Lee, & Kang, 2018; Raab, Shoemaker, & Mayer, 2007), the efficient use of limited resources in materiality will be particularly well received. Therefore, as much as materiality topics by SASB represents the momentousness of the chosen issues in the restaurant industry, addressing them and prioritizing investments for the issues may result in favorable firm performance. Moreover, as CSR/sustainability initiatives are becoming a widely accepted norm in the restaurant industry (McCool & McCool, 2010; Wolf, 2015), competing firms in the same industry create institutional pressure such that a given firm is also expected to follow suit. For example, sampling restaurant managers in the Las Vegas area, a recent study revealed that suppliers and customers represent the greatest influence on restaurant managers' motives for adopting CSR/sustainability initiatives, as well as employees and society to a lesser extent (Raab, Baloglu, & Chen, 2017). Thus, according to the logic of institutional theory, when a given restaurant firm does not acknowledge the interest of social institutions in addition to themselves and does not comply with such expected norms, the expectation is that the firm is punished by the financial markets and other stakeholders in today's economy (Campbell, 2007; DiMaggio & Powell, 1983; Scott, 2013). However, it is not just about the pressure regarding general CSR, but about the pressure from direct competitors for more relevant and material CSR activities for the industry. Neoinstitutionalism is useful for understanding this concept. The main logic of neoinstitutional theory is that organizational customs evolve and get adjusted according to what is considered legitimate and this legitimacy is gained through coercive isomorphism, normative pressures and mimetic processes (DiMaggio & Powell, 1983; Matten & Moon, 2008). For example, coercive isomorphism states that externally codified standards, guidelines, or rules such as those codes of behavior suggested by GRI or UN accredit legitimacy to noble business practices. Similarly, as SASB's industry-specific materiality guideline is publicly issued, it can constitute coercive isomorphism in the sustainability and

Hypothesis 1. Material sustainability engagement positively impacts firm performance. On the other hand, firms investing heavily in immaterial (i.e., perceived to be less or not important to asset managers, top management teams, and other stakeholders) CSR/sustainability issues may be regarded as not taking the most strategic actions by investors and financial markets. This is because the expectation is that focusing on less important issues generally does not lead to profitable outcomes for firms. Although the impact of investing in material and immaterial CSR/sustainability topics may yield different results, investing in less important CSR/sustainability issues still entails engaging in pro-CSR activities. Considering society's growing expectations for firms to be “good corporate citizens” (Orsato, 2006), making efforts to advance the CSR/sustainability agenda, even by investing in immaterial issues, may be still viewed as acceptable or non-negative. To date, it has not been determined if stakeholders or firms can actually distinguish the disadvantages of investing in less critical sustainability issues, and accordingly whether markets will penalize firms for such engagement choices. In fact, far from identifying the importance of key sustainability topics and understanding the consequences of investing in each topic, few companies have developed a systematic plan to implement CSR. Due to the rapid growth of the concept of CSR, firms often devise plans which lack coherency and organization instead of establishing a clear plan ahead of time (Cheney, 2010). Khan, Serafeim, and Yoon (2016) recently offered empirical findings that firms with good ratings on immaterial sustainability topics do not outperform firms with inferior ratings on identical topics. While perhaps not the most strategic choice, investing in immaterial sustainability items in a given industry (i.e., the restaurant industry in our study) is still perceived as pro-social and pro-sustainability efforts, and may not lead to a significantly inferior financial firm performance solely because it is classified as less crucial CSR/sustainability issues in a given industry. Based on these arguments, a restaurant firm's engagement in immaterial sustainability initiatives may not leave firms to be penalized by the financial markets. Hypothesis 2. Immaterial sustainability engagement neither harms nor improves firm performance.

2.3. Franchising and materiality Without conducting a focal firm's own materiality analysis to identify and prioritize the firm's own material sustainability issues, it

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would be reasonable to refer to SASB's industry-level guide. However, while the industry materiality topic should be taken into account as a trend, firm-specific adjustment should also be made to make more appropriate strategic moves. A key firm-level factor that should be considered for a restaurant firm is franchising as not all firms in the restaurant industry pursue the same degree of franchising. Taking franchising into account, however, can change the relationship between material and immaterial CSR/sustainability activity and financial performance. Franchising is an ongoing business relationship between franchisor and franchisee that includes not only the product, service and trademark, but the entire business concept itself—a marketing strategy and plan, operating manuals and standards, quality control, and a continuing process of assistance and guidance (Cook & Ryan, 2015, p. 304). It is a well-received strategic vehicle in pursuit of increasing market share and rapid expansion (Alon, Ni, & Wang, 2012; Hoffman & Preble, 1991) and achieving first mover advantage (Michael, 2003). The restaurant industry is where franchising strategy is the most prevalent (Bradach, 1998; Khan, 2014) and thus has been a focal industry of many research projects in the franchising literature. In fact, the engagement guide by SASB also suggests number of franchised restaurants and employees at company-owned and franchised properties as a key contextual consideration to show the importance of franchising in the restaurant industry. Therefore, in the restaurant materiality management, franchising is a vital factor that should be considered. Stakeholder theory is one of the most widely discussed and frequently ingrained theories in CSR and sustainability research (Laplume, Sonpar, & Litz, 2008; Montiel & Delgado-Ceballos, 2014). For example, in their only materiality study in the tourism and hospitality literature thus far, Font, Guix, and Bonilla-Priego (2016) also based their materiality reporting practice analysis for the cruise industry on stakeholder theory. The current study draws upon stakeholder theory in making propositions, relating franchising to the link between (im)material CSR/sustainability activity and firm performance. As mentioned earlier, stakeholder theory proposes that firms need to consider interests and needs of a wide range of stakeholders to be successful (Altinay & Miles, 2006). As shown in Font et al. (2016), different stakeholder groups perceive different topics as material. The major foundation of stakeholder theory involves balancing divergent stakeholder interests over time so that managers can sustain the support from groups of stakeholders with different wants and needs (Reynolds, Schultz, & Hekman, 2006). Schneider (2002) used the concept of organizational leadership in the stakeholder context and defined leader effectiveness as the combined sense of leader efficacy built upon how a leader perceives multiple stakeholders. Therefore, in this regard, an effective leader would take multiple stakeholders into account when making investment decisions and balance their interests to ensure the way in which stakeholder perceive the leader would be favorable. In this regard, stakeholders influence corporate strategies such as investment decisions (Frooman, 1999). As the degree of franchising increases, more stakeholder groups that require important considerations are involved: franchisees, employees hired by franchisees, different customer span, local community and government authority of where they operate all around the world. The additional group may come with values, needs, and wants that are different from those which existing stakeholder groups have. Therefore, franchising must be considered when analyzing restaurant materiality and not all restaurant firms in the industry will be equally affected by the industry-specific materiality list. Indeed, different stakeholder groups do not regard the same sustainability topic as material to the same extent (Font et al., 2016). For example, an actual reporting of Yum! Brands, one of the representative restaurant firms, clearly shows that different firms have different key stakeholder groups as well as material topics. Yum! Brands introduced materiality section for the first time in 2017 Global Citizenship and

Sustainability Report, and its materiality management involves process of identifying, prioritizing, interviewing stakeholders, analyzing and validating materiality topics that apply to the company. It is also clear from Yum! Brands' report (p.11) that stakeholder groups have different interests and priorities. The firm sets priority among stakeholder groups according to their relative importance, determines material sustainability topics, and reports them according to the firm's stakeholder inputs. Through the interview of their key stakeholders, the firm identified franchisees, shareholders, communities, employees and customers as key stakeholders, and community and philanthropy, culture and talent, and food safety as material issues. As franchisees typically have a strong tie to the local community, and an increasing number of franchising companies today believe that community involvement has a direct impact on the growth of franchisees in their market and success (Scrivano, 2006). Moreover, the restaurant industry is extremely dependent on local labor markets (Melissen, van Ginneken, & Wood, 2016; Wood, 1997). Accordingly, through strategic community relations, franchisees can enhance their brand awareness and build a more positive brand image beyond merely maintaining business relations. In fact, McDonald's also announced that the firm's priorities include supporting local communities and youth development opportunities in its ESG reporting (McDonald's corporate website). Restaurant Brands International which consist of representative restaurant brands such as Burger King and Popeyes, and Tim Hortons are almost entirely franchised and clearly identified that people and community is at the core of the firm's sustainability efforts. However, based on SASB's Materiality Map, community relations and investment in culture and talent are not evaluated as a material CSR/sustainability issue for the restaurant industry, even though numerous restaurants which adopt a franchising strategy may view these topics as material. This may be due to the fact that aside from the six areas chosen as material topics for restaurants – i.e., 1) Energy and waste management, 2) Food and packaging waste management, 3) Food safety, 4) Nutritional content, 5) Fair labor practices, and 6) Supply chain management and food sourcing) – all other CSR/sustainability topics are mapped as immaterial for the restaurant industry by SASB. In fact, other immaterial-classified topics, such as ‘water and wastewater management’, ‘water and hazardous materials management’, and ‘fair marketing and advertising’, are also likely to be considered as material by many franchisees.2 While franchisors-franchisees relationships and sustainability has not been examined in the tourism and hospitality literature, Melissen et al. (2016)'s discussion of owner-operator split in the hotel industry provides a relevant point regarding additional stakeholders and possible conflicts of interest. The implication is that with the broadened groups of stakeholders, the diversity and variety of norms and values as a whole become expectedly higher considering that the interest alignment between the firm and franchisees or other key stakeholder groups are not always guaranteed. Therefore, this additional complication to already complex set of stakeholder interests will further heighten the risk of disagreement on what is viewed material for a focal restaurant firm. Overall, the more stakeholders a company has, the more CSR/sustainability initiatives the company may have to deal with that go beyond the materiality classification set forth by the SASB. As Jensen (2002) suggests, managers need to make necessary tradeoffs among its stakeholders to create long-term firm value. Accordingly, as a restaurant firm embraces more stakeholders through its franchising strategy, it would be increasingly important to balance the diverse interests and views of these stakeholders. As discussed earlier, since the inputs of the various key stakeholders are formed differently for each restaurant firm, the list of materiality and the list of immateriality can be 2 The full list of various possible sustainability topics can be found at https:// www.sasb.org.

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sufficiently changed. Moreover, as material restaurant sustainability topics are of only six issues mentioned above, various stakeholder groups are likely to view the topics on the immaterial sustainability list as in fact important. Taken together, if SASB's materiality classification is valid and truly representative of different stakeholders' views, sustainability topics that are classified as material may still be considered to be important topics, regardless of the increased stakeholders due to franchising. On the other hand, the increasing variety of restaurant firms' stakeholders due to franchising increases the likelihood that CSR/sustainability topics mapped as immaterial are deemed to be actually an important issue. Considering that immateriality is defined as the sustainability topics that are not material, it is highly likely that a diverse group of stakeholders coming from franchising would consider topics currently classified immaterial as material. Therefore, investing in topics that are presently labeled as immaterial by the SASB may have a positive impact on stakeholder relations and thus firm performance. Accordingly, this research hypothesizes that franchising can positively moderate the relationship between immaterial CSR/sustainability engagement and firm performance, while this moderating role of franchising does not exist for the relationship between material CSR/sustainability activity and firm performance.

committed to ESG so that the data set can be of help to investors, particularly those who are concerned about sustainability or those who practice socially responsible investing (Turner, 2017). Due to its wide coverage of U.S. company samples and historical database, MSCI KLD scores have been widely used in CSR/sustainability research (Białkowski & Starks, 2016; Dorfleitner, Halbritter, & Nguyen, 2015). KLD ratings cover seven ESG domains: community, diversity, environment, corporate governance, human rights, employee relations, and products. KLD rates companies' ESG performance using a simple binary scoring system. For example, if a firm satisfies the assessment standard for a given indicator, it receives a “1” for the indicator; otherwise, it receives a “0”. If a company has not been researched for a certain indicator, it receives an “NR” for the corresponding ESG indicator. Within each ESG domain, various topics are included for which indicator items are assessed. For instance, in positive governance performance indicators, ‘corruption and political instability’ and ‘financial system instability’ are included, while negative governance performance includes ‘bribery and fraud’ and ‘controversial investments’. As for negative environment performance indicators, assigned issues include toxic emissions and waste, energy and climate change, impact of products and services, operational waste, and water stress. While KLD does not distinguish its scoring data for each industry, SASB's materiality engagement guide provides industry-specific information based on the idea that sustainability topics that are most likely to affect future risk and financial performance of a firm vary across different industries. The SASB is an independent non-profit organization that develops sustainability accounting standards for 79 industries across 10 sectors. SASB standards are developed for the publication of material sustainability information in mandatory Securities and Exchange Commission (SEC) filings, such as Form 10-K and 20-F, supporting publicly-traded firms' disclosure of material sustainability information in such a way that is decision-useful and costeffective, according to SASB's website. SASB's approach to determine materiality for the purposes of setting accounting standards is informed by federal securities laws and SEC regulations (SEC, 2003). The SASB asserts that its classification process is evidence-based, market-informed, and approved through research and quantitative analysis in deciding whether performance on a certain topic would influence the financial circumstances and operating performance of a company. As part of this process, the Materiality Map identifies and compares material sustainability issues which are most likely to affect investors. Then, the prioritized topics are mapped and suggested for disclosure to enhance the confidence of investors across industries and sectors. The five dimensions of the Materiality Map are: (1) Environment, (2) Social Capital, (3) Human Capital, (4) Business Model and Innovation, and (5) Leadership and Governance (see Appendices A and B respectively for an example Materiality Map and an explanation as to how it was created). Khan et al. (2016) recently conducted a research study on CSR/ sustainability-related materiality and stock returns using SASB's Materiality Map. Although their study was novel and made a significant contribution to the CSR and materiality literature, it considered the entire U.S. economy using sector-specific rather than industry-specific materiality specifications. This presents an opportunity for researchers to focus on an individual industry using industry-specific materiality specifications. Furthermore, to the best of our knowledge, the link between materiality and firm performance along with the moderating role of franchising has never been investigated in the restaurant context.

Hypothesis 3a. The positive impact of material CSR/sustainability activity on firm performance does not change regardless of the level of franchising. Hypothesis 3b. As a restaurant firm's degree of franchising increases, the insignificant impact of immaterial CSR/sustainability activity on firm performance becomes more positive. 3. Methodology 3.1. Data collection This study first makes use of SASB's industry-specific Materiality Map in order to identify material CSR/sustainability issues in the restaurant industry. The industry is categorized under the service sector and sub-sector of hospitality and recreation, which includes hotels and lodging, casinos and gaming, leisure facilities, and the cruise lines industry. The SASB's industry-focused materiality guidance is unique in that existing CSR databases (e.g., MSCI ESG) rate firms' sustainability efforts using uniform evaluation standards across various industries, often without considering the relative importance of sustainability topics in a given industry. Second, the KLD database offered by MSCI ESG STATS (a statistical tool for analyzing trends in social and environmental performance) is used to collect information on firm-level CSR/sustainability performance. Third, this study matches KLD items with the industry-specific SASB materiality topics, such that KLD items that measure the six materiality topics are mapped as material, and the remaining items as immaterial. After the mapping has been completed, the merged data is created so that annual materiality and immateriality scores for firms can be evaluated. The sample of publicly-traded restaurant firms, identified using North American Industry Classification System (NAICS) codes of 722110 and 722511 (full-service restaurant) and 722211 and 722513 (limited-service restaurants), are analyzed from 2000 to 2015. Sampled firms' financial data were collected from the COMPUSTAT annual database. MSCI ESG KLD STATS is an annual data set consisting of positive and negative ESG performance indicators applied to publicly-traded firms (MSCI ESG Research Inc., 2015). This data set allows individuals or companies to evaluate companies' ESG performance that affects investment decision-making. Scores are assigned to those firms

3.2. Dependent variables Tobin's q is adopted as a measurement of firms' financial performance, the dependent variable. It is defined as “the ratio of the market value of a firm to the replacement cost of its assets” (Chung & Pruitt,

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1994, p. 70). Tobin's q has been preferred as a more reliable performance measure than accounting measures (e.g., return on assets and return on equity) and stock returns due to its reflection of an efficient market's retrospective and prospective evaluations (Fama, 1965; Youn, Song, Lee, & Kim, 2016). It is also perceived to be superior to a binary proxy of firm's growth opportunities (Szewczyk, Tsetsekos, & Zantout, 1996). A modified model of Tobin's q has been employed due to data availability limitations in measuring up-to-date and precise q. Chung and Pruitt (1994) empirically showed that their approximate q model explains more than 96% of the variability of Tobin's q compared to the more theoretically precise model of Lindenberg and Ross (1981). Their approximate q model is preferred in many empirical studies (e.g., Carter, Rogers, & Simkins, 2006; Connolly & Hirschey, 2005) due to data accessibility and clear computation. The approximate q = [(a firm's share price * the number of common stock shares outstanding) + (the liquidating value of the firm's outstanding preferred stock) + (the value of the firm's short-term liabilities net of its shortterm assets + the book value of the firm's long-term debt)]/(the book value of the total assets of the firm).

improving firm performance (Minkler, 1990; Norton, 1988; Zott & Amit, 2007). In the current study, firm size is measured by the natural logarithm of a firm's total annual sales to correct for potential positive skewness of the distribution of total sales. Leverage (LEV), measured by debt-to-asset ratio, is also controlled for in the model. If a firm increases its level of debt use, it may take advantage of a tax shield (McConnell & Servaes, 1990), thus increasing its performance and while potentially retaining more resources for CSR/sustainability activity. Conversely, the immoderate use of debt may lead a firm to bear more risk and bankruptcy cost, resulting in poor performance and a likely reduction in CSR/sustainability investment. Next, turnover (TURNOVER) is controlled for and measured by dividing the number of shares traded by the number of shares outstanding. Share turnover is used to capture the liquidity of a firm's stocks (Datar, Naik, & Radcliffe, 1998). Firms with high stock liquidity are found to have better performance (measured by market-to-book ratio), as liquidity leads to an increase in the information content of market prices and performance-sensitive managerial compensation (Fang, Noe, & Tice, 2009). Therefore, liquidity is included in the model to control for its possible impact on stock returns, and thus on firm performance. To represent a firm's profitability, return on assets (ROA) is also controlled for, as a firm with higher profitability is likely to achieve a better market performance and may have more chances to make CSR/ sustainability investments with its slack resources (Waddock & Graves, 1997). Capital expenditure (CAPEXP) represents growth opportunities, while advertising expense (ADEXP) can be a proxy for customer goodwill (Jiraporn, Miller, Yoon, & Kim, 2008). Sales, general and administrative expense (SGA) may be used as the indicator of poor future operating performance (Janakiraman, 2010). CAPEXP, ADEXP, and SGA are each calculated by dividing the respective values by annual sales; based on the previous literature, these variables are included in the model due to their possible influence on firm performance (Khan et al., 2016).

3.3. Main variables According to the SASB Materiality engagement guide for asset owners and asset managers, six topics are classified as material sustainability issues for the restaurant industry: 1) Energy and waste management, 2) Food and packaging waste management, 3) Food safety, 4) Nutritional content, 5) Fair labor practices, and 6) Supply chain management and food sourcing. Using these topics as a guide, KLD indicators, which consist of strengths and concerns regarding ESG performance of a firm, were classified into material and immaterial. That is, KLD items that address the material CSR/sustainability topics comprise a firm's material CSR/sustainability engagement scores, while all the other KLD items that do not precisely address these six topics encompass a firm's immaterial CSR/sustainability engagement scores. Adopted from Khan et al. (2016), net materiality (NetMAT) is calculated by subtracting the sum of material KLD concern indicators from the sum of material KLD strength indicators. Net immateriality (NetIMMAT) is calculated by subtracting the sum of immaterial KLD concerns indicators from the sum of immaterial KLD strength indicators. Measurement of NetMAT and NetIMMAT are summarized by the following calculations:

Net Materialityit =

3.5. Model Following the general norm and practice of the financial economics and strategic management literature, this study adopts an econometric technique to investigate the impact of material and immaterial CSR/ sustainability activity on firms' financial performance, and the moderating role of franchising on this relationship. In specific, due to the nature of our data (i.e., panel data), pooled regression analysis would likely provide biased results caused by unobserved effects, and thus this study employs a firm-level panel regression analysis to take into consideration of such effects (Wooldridge, 2010). Based on the results of the Hausman test (chi2 = 46.04, Prob > chi2 = 0.00), this study adopts a two-way fixed-effects model by firm and year (Greene, 2008). To meticulously handle possible firm and year heterogeneities, clustering of standard errors has also been conducted in analyzing the panel dataset with firm-year observations (Cameron & Miller, 2015; Petersen, 2009). To test the main effect of Net Materiality (NetMAT; H1) and Net Immateriality (NetIMMAT; H2) on firm performance, the study performs the analysis using the following model:

Material KLD Strengthit Material KLD Concernsit

Net Immaterialityit =

Immaterial KLD Strengthit Immaterial KLD Concernsit

The degree of franchising (DOF) is calculated by dividing the number of franchised properties by the total number of properties of a firm. 3.4. Control variables

Tobin s qit =

Following the previous literature, seven variables that can affect a restaurant firm's performance and possibly confound the results are controlled in the proposed models: size; leverage; capital expenditure; turnover; profitability; advertising expense; and sales, general and administrative expense. First, a firm's size (SIZE) is controlled for its possible effect on firm performance. According to the resource scarcity theory, larger firms are likely to enjoy economies of scale, thus

0

+

1 NetMATit

+

5 LEVit

+

9 ADEXPit

+

+

2 NetIMMATit

6 CAPEXPit

+

10 SGAit

+

3 DOFit

+

7 TURNOVERit

+

it

+

+

4 SIZEit 8 ROAit

To test the moderating effect of franchising on the relationship between NetMAT (H3a) and NetIMMAT (H3b) and firm performance, the study conducts the analysis using the following model:

6

400

$2629.00

$5965.17

$49.96

$37938.70

400 400 400 400 400 400 400

0.36 0.32 0.08 2,964,801 0.73 0.02 0.11

0.35 0.48 0.46 1,693,652 0.73 0.016 0.08

0 0 0.001 357,059.5 −0.43 0 0

1 3.68 0.28 9,126,178 0.32 0.06 0.62

0

+

1 NetMATit

NetMATit + +

8 CAPEXPit

+

11 ADEXPit

+

2 NetIMMATit

5 DOFit

+ +

+

3 DOFit

NetIMMATit +

9 TURNOVERit 12 SGAit

+

+

+

6 SIZEit

7

4 DOFit

+

6

Tobin s qit =

8

Note: Tobin's q represents firm performance measured by an approximation of q; NetMAT represents mean-centered net materiality score calculated by subtracting material concern from material strength; NetIMMAT represents meancentered net immateriality score calculated by subtracting immaterial concern from immaterial strength; SIZE represents the natural logarithm of the total sales; DOF represents the mean-centered degree of franchising; LEV represents a firm's leverage; CAPEXP represents capital expenditures over sales; TURNOVER represents shares traded over shares outstanding; ROA represents return on assets; ADEXP represents advertising expenditures over sales; SGA represents sales, general and administrative expenditures over sales.

7 LEVit

10 ROAit

it

3

4

5

Here, Tobin's q represents firm performance measured by an approximation of q; NetMAT represents net materiality scores, calculated by subtracting material concern from material strength; NetIMMAT represents net immaterial scores, calculated by subtracting immaterial concern from immaterial strength; DOF represents the degree of franchising; SIZE represents the natural logarithm of total sales; LEV represents a firm's leverage; CAPEXP represents capital expenditures over sales; TURNOVER represents shares traded over shares outstanding; ROA represents return on assets; ADEXP represents advertising expenditures over sales; and SGA represents sales, general and administrative expenditures over sales. 4. Results

Table 2 Summary of Pearson's correlations.

Table 1 reports the summary of the main and control variables. Tobin's q is distributed between 0.26 and 10.09, with a mean of 2.15 and a standard deviation of 1.40. NetMAT ranged from −3 to 3, with a mean of −0.01 and a standard deviation of 0.64. NetIMMAT averaged −0.09, with a standard deviation of 3.27 and the distribution between −8 and 19. With the exception of ADEXP (within a small range), all control variables in the model (SIZE, LEV, CAPEXP, TURNOVER, ROA, and SGA) varied sufficiently to account for lurking variables when the relationships of interest are examined. Table 2 illustrates the bivariate relationships of every pair in the study based on Pearson's correlation analysis. Tobin's q is positively related with NetIMMAT (r = 0.2277), DOF (r = 0.2194), SIZE (r = 0.2449), LEV (r = 0.3329), and ROA (r = 0.5967), while 7

1

2

4.1. Descriptive statistics

Note: *, **, and*** denote 5%, 1%, and less than 0.1% significance levels, respectively.

$28105.70

1 0.0815

$81.10

1 0.1475** −0.0656

$4901.72

1 0.0556 −0.0742 −0.0313

$2897.23

1 0.0409 −0.0366 −0.1014* −0.2290***

400

1 −0.3280*** −0.0783 0.1905*** 0.1337** 0.1382**

10.09 3 19 4.45 $5585.90

1 0.0851 −0.2081 0.0112 0.3230 0.3387 0.0123

0.26 −3 −8 1.91 -$479.74

1 −0.1948*** 0.0809 0.0684 −0.0575 −0.0834 −0.0906 0.1133*

1.40 0.64 3.27 0.50 $787.88

1 0.1502** −0.2654*** −0.1117* 0.0689 0.0314 −0.1123* −0.1247* −0.0285

2.15 −0.01 −0.09 3.12 $265.21

1 0.0042 0.1378** 0.0671 0.4519*** −0.2403*** −0.1340** 0.2644*** 0.3752*** 0.0604

400 400 400 400 400

1 0.0078 −0.1201* −0.4574*** 0.4217*** 0.0034 −0.0665 −0.0407 0.1573** −0.0153 −0.0650

Tobin's q NetMAT NetIMMAT SIZE Net Income (U.S. $ millions) Revenue (U.S. $ millions) Total Asset (U.S. $ millions) DOF LEV CAPEXP TURNOVER ROA ADEXP SGA

1 0.1860*** −0.1465** 0.1468** −0.1282* −0.0032 −0.0964 0.0155 −0.0902 −0.0247 −0.1146* −0.0241

Max

1 0.0324 0.2277*** 0.2194*** −0.1192* −0.1781*** 0.2449*** 0.3329*** 0.0651 0.0592 0.5967*** −0.0445 −0.1208*

Min

1. Tobin's q 2. NetMAT 3. NetIMMAT 4. DOF 5. DOF *NetMAT 6. DOF *NetIMMAT 7. SIZE 8. LEV 9. CAPEXP 10. TURNOVER 11. ROA 12. ADEXP 13. SGA

Std. Dev.

11

Mean

10

N

9

Variable

12

13

Table 1 Summary of descriptive statistics.

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Table 3 Main results of two-way fixed-effects model by firm and year. Variable

NetMAT NetIMMAT DOF DOF*NetMAT DOF*NetIMMAT SIZE LEV CAPEXP TURNOVER ROA ADEXP SGA N Wald Chi2

Model 1

Model 2

Coefficient

z-value

p-value

VIF

Coefficient

z-value

p-value

VIF

−0.026 −0.010 2.425***

−0.44 −0.60 4.19

0.658 0.550 0.000

1.08 1.32 1.59

0.806*** 0.379* 3.586*** −0.000*** 4.495*** −9.528 −1.696 400 1744.39***

2.62 1.71 2.89 −2.93 5.99 −1.64 −1.37

0.009 0.087 0.004 0.003 0.000 0.101 0.170

1.64 1.37 1.25 1.05 1.24 1.39 1.08

−0.018 0.002 2.522*** −0.177 0.111*** 0.839*** 0.318 3.424*** −0.000*** 4.119*** −7.104 −1.984 400 1788.97***

−0.30 0.09 4.40 −1.26 2.60 2.74 1.45 2.79 −2.89 5.46 −1.21 −1.61

0.764 0.925 0.000 0.208 0.009 0.006 0.148 0.005 0.004 0.000 0.225 0.107

1.12 1.65 1.68 1.14 1.42 1.71 1.39 1.27 1.06 1.25 1.46 1.10

Note: *, **, and*** denote 10%, 5%, and less than 1% significance levels, respectively.

negatively related with DOF*NetIMMAT (r = −0.1781) at a 0.1% significance level. At a 5% significance level, Tobin's q is negatively related with DOF*NetMAT (r = −0.1192) and SGA (r = −0.1208). NetMAT has a significant positive correlation with NetIMMAT (r = 0.1860) and DOF*NetMAT (r = 0.1468) at a 0.1% and 1% significance level respectively. NetMAT has a significantly negative correlation with DOF (r = −0.1465) at a 1% significance level, and with DOF*NetIMMAT(r = −0.1282) and ADEXP(r = −0.1146) at a 5% significance level. NetIMMAT shows a significant negative correlation with both DOF*NetMAT (r = −0.1201) and DOF*NetIMMAT (r = −0.4574) at a 5% and 0.1% significance level respectively. It shows significant positive correlations with SIZE (r = 0.4217) and ROA (r = 0.1573) at a 0.1% and 1% significance level respectively. At a 0.1% significance level, DOF is positively correlated with LEV (r = 0.4519), ROA (r = 0.2644), and ADEXP (r = 0.3752), while negatively correlated with CAPEXP (r = −0.2403). At a 5% significance level, it is positively correlated with DOF*NetIMMAT (r = 0.1378) and negatively correlated with TURNOVER (r = −0.1340). DOF*NetMAT is negatively associated with SIZE (r = −0.2654) at a 0.1% significance level and with LEV (r = −0.1117), ROA (r = −0.1123) and ADEXP (r = −0.1247) at a 5% significance level. It is positively associated with DOF*NetIMMAT (r = 0.1502) at a 1% significance level. DOF*NetIMMAT is negatively correlated with SIZE (r = −0.1948) at a 0.1% significance level, while positively associated with SGA (r = 0.1133) at a 5% significance level. LEV shows positive associations with ROA (r = 0.1905) at a 0.1% significance level, and with ADEXP (r = 0.1337) and SGA (r = 0.1382) at a 1% significance level. On the other hand, it shows a negative association with CAPEXP (r = −0.3280) at a 0.1% significance level. ADEXP is negatively correlated with CAPEXP (r = −0.1014) at a 5% and positively correlated with ROA (r = 0.1475) at a 1% significance level. SGA is negatively associated with CAPEXP (r = −0.2290) at a 0.1% significance level.

activity on Tobin's q). The coefficient of DOF is positive and significant (2.425 with a p-value of 0.000). Among control variables, SIZE, CAPEXP, TURNOVER, and ROA are significant at the 0.1% significance level, while LEV is significant at the 10% significance level. Model 2 in Table 3 reports the results of the moderating effect of franchising on the relationship between NetMAT and NetIMMAT on Tobin's q. DOF*NetMAT shows an insignificant coefficient, suggesting that the effect of NetMAT on Tobin's q does not vary appreciably as a restaurant firm adopts a franchising strategy. However, since we did not find a positive main effect of NetMAT on Tobin's q (H1), this insignificant moderating effect of franchising does not support our moderation Hypothesis (H3a), which assumes the existence of a positive main effect of NetMAT. This finding of an insignificant moderation effect should be interpreted with the understanding of an insignificant main effect of NetMAT on Tobin's q. The coefficient of DOF*NetIMMAT has a positive and significant value (p-value = 0.009), supporting H3b (as a firm's degrees of franchising increases, the impact of immaterial activity on Tobin's q becomes positive). As for the control variables, SIZE (p-value = 0.006), CAPEXP (p-value = 0.005), and ROA (p-value = 0.000) show a positive and significant effect at the 1% level of significance, while TURNOVER (p-value = 0.004) shows a negative and significant effect at the 1% level of significance. Variance inflation factor values for all of variables fall between 1.08 and 1.71, which are well below the acceptable threshold of 10 for multicollinearity (Tabachnick, Fidell, & Osterlind, 2001). All results on both the main and moderating effects were found to be qualitatively the same when using a two-way random-effects model as a sensitivity analysis. For example, model 2 resulted in bnetMAT = -0.018, p-value = 0.764; bnetIMMAT = 0.002, p-value = 0.925; bDOF*NetMAT = −0.177, p-value = 0.208; bDOF*NetIMMAT = 0.111, p-value = 0.009.

4.2. Main results

The main purpose of this research is to investigate the effect of material and immaterial CSR/sustainability activity on firm performance, and the moderating role of franchising on this relationship in the restaurant context. While providing one of the first empirical evidence to stakeholder theory in relation to restaurant materiality and franchising, this study makes relevant and significant contributions to

5. Discussion and conclusion

Model 1 in Table 3 reports the main effects of NetMAT and NetIMMAT on Tobin's q. The coefficient of NetMAT is insignificant, failing to support H1, while the coefficient of NetIMMAT is insignificant, supporting H2 (an insignificant effect of immaterial CSR/sustainability

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the tourism and hospitality literature. In particular, sustainability, materiality and franchising are essential and timely agendas in the contemporary corporate world, but still rarely examined in the tourism literature. Let alone the scant number of franchising discussion in the tourism context, materiality remains especially unexplored. The only materiality study in the tourism literature is Font et al. (2016) in the journal regarding cruise industry whose main aim was the illustration of the gap between corporate practices and stakeholder expectations in CSR reporting through survey. In a similar vein of stakeholder approach but different methodological lens and research focus, the current study further expands and contributes to a more vibrant conversation on materiality in the tourism industry. This study finds that CSR/sustainability activities in materiallyclassified topics do not increase the likelihood of firms achieving better firm performance (H1 is not supported). H3a, which proposes that franchising does not alter the positive impact of material CSR/sustainability activity on firm performance, cannot be supported, even with our finding of the expected insignificant moderating effect of franchising. This is because the positive impact of material CSR/sustainability engagement on firm performance (H1) has been rejected when H3a is built on H1. Accordingly, our findings on the moderating effect should be cautiously interpreted in combination with the finding of an insignificant main effect of the material activity; not only does a restaurant firm's engagement in CSR/sustainability initiatives not positively influence the firm's performance, but also such an insignificant effect of material activity remains the same regardless of the firm's franchising implementation. Furthermore, our results provide support for H2 that restaurant firms with higher scores in CSR/sustainability engagement in immaterially-classified topics do not achieve significantly different performance from restaurant firms with lower scores on those topics. Lastly, the study finds support for H3b that franchising positively moderates the relationship between immaterial CSR/sustainability activity and firm performance. Support for H3b should be interpreted in combination with the finding on H2; while a restaurant firm's engagement in immaterial CSR/ sustainability activity does not influence its performance, as the firm increases its level of franchising, the insignificant impact of immaterial CSR/sustainability activity on firm performance becomes positive. These results are aligned with the expectation that as a restaurant firm faces a wider scope of stakeholders (mainly franchisees) resulting from franchising, it will strive to balance the divergent stakeholders' interests and wants, and thus different views and priorities result as to what is material to a given restaurant firm when making CSR/sustainability engagement decisions. In turn, it is likely that a wider scope of stakeholder groups will be interested in a greater variety of CSR/sustainability issues, of which some may be classified as immaterial based on SASB's guide. The study results expand on or provide confirming evidence to the existing theoretical and empirical research findings. As with the stakeholder theory, the previous findings that corporate strategies are influenced by stakeholders (Frooman, 1999) and that the firm effect is greater than the industry effect (Short, Ketchen, Palmer, & Hult, 2007), are in line with the result of the current study. Companies with a wide range of stakeholders may make investment decisions by considering factors that represent more firm-specific rather than industry-specific effects. In the case of long-established or larger firms which employ a franchising strategy, firm-specific effects, rather than industry effects, will be of more significance due to organizational learning needs (Sorenson & Sørensen, 2001). In fact, analyzing more than 1000 firms in 12 industries, Short et al. (2007) found the firm effect to be the strongest, whereas the effect of strategic group was greater than the industry effect. Based on this account, it can be suggested that even

when firms in the same restaurant industry allocate the same amount of resources to CSR/sustainability-related factors and release relevant information to the public accordingly, they still pursue firm-specific strategies by focusing on what is viewed as material by their own stakeholders along with referring to the suggested classification of SASB guide. Compared to previous literature in the restaurant industry, this study is consistent in showing that CSR/sustainability variable's main effect per se is insignificant on a firm's performance measures. To recap, this study demonstrates that when classifying CSR/sustainability topics as material and immaterial, the main effect of materiality and immateriality on firm performance is insignificant when franchising is not considered. Examples from the tourism and hospitality literature including Park and Lee (2009) which found that a single composite CSR has an insignificant impact on total shareholder return and Kang et al. (2010) where CSR was divided into positive and negative activities and no significant impact found on profit measure are in line with the current research finding. Some of the novelty of the current study comes from its results and approaches, of which are different from those of previous literature on the materiality issue. In particular, Khan et al. (2016) found that firms with good scores on material sustainability issues outperform firms with poor ratings on the issues, which is inconsistent with our findings. This may be due to the use of different samples, research scope, and method. While Khan et al. (2016) used a portfolio formation and estimation method to analyze firms at six different sector levels (financial, healthcare, nonrenewable resources, services, technology and communications, and transportation) over the sample period of 1991–2013, this study investigated the restaurant industry using the industry-specific SASB Materiality Map with a franchising strategy as a moderating role. One possible reason why our results fail to accept H1 may be due to insufficient variations of NetMAT (Table 1). Compared to NetIMMAT (ranging from −8 to 19), NetMAT data ranged from −3 to 3. Another possible explanation for the insignificant result regarding H1 is that SASB's materiality classification for the restaurant industry is yet to be representative of a fair amount of stakeholder views involved in the restaurant firms; therefore, even if restaurant firms make CSR/sustainability engagement efforts according to materiality standards, such actions may not lead to better firm performance if the suggested classification does not appropriately represent balanced various stakeholders' (including franchisees') views. As stated in SASB's website, the Materiality Map “serves as a snapshot of likely material sustainability issues at the time of their initial analysis and may be subject to change as issues and industries are everevolving.” SASB also explains that their standard can be updated based on evidence-based research, balanced stakeholder consultation and public comment. Therefore, this study provides informative evidence and opens the possibility that as far as the restaurant industry is concerned, the map may need to be continuously re-examined and further refined. The current study's finding that investment in immaterially-classified CSR/sustainability items itself does not necessarily harm a restaurant firm's performance but rather becomes important for restaurant firms with high degree of franchising should be considered. Given that the SASB considers a CSR/sustainability topic's financial impact and engages industry working groups and public comments when determining materiality issues, the result of this research study also raises a few lines of inquiry. First, does consideration of the financial implications of a CSR/sustainability topic's impact represent the true risk and opportunities of firms in a given industry? Second, does the restaurant industry, and possibly other industries, accept SASB's standards and perceive them as applicable and a useful guide on CSR/

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are most important to investors (SASB, 2018). This may have caused many topics that can be reasonably considered as material by various restaurant stakeholder groups to be omitted from the current SASB's materiality list for the restaurant. Therefore, future studies can examine any gap or congruency among firms' actual sustainability reporting and materiality analysis practice, stakeholder expectation, various guidance from standard-setting or ESG rating institutions such as GRI, SASB and Sustainalytics. Although the current study did not incorporate new categorization of materiality issues on our own in order to limit the researchers' subjectivity as much as possible, our findings especially in regards to H1 suggest that future studies may incorporate new categorization of material and immaterial topics in the restaurant industry including the industry's crucial factors such as franchising. While MSCI ESG database is the most commonly used dataset for CSR and sustainability studies (Waldman, Siegel, & Javidan, 2006), it covers large, publicly traded firms; therefore, researchers are limited to significantly expanding the sample size and are bounded in terms of comprehensive coverage of sample firms. In addition, the findings of this study are germane to the restaurant industry, but not necessarily to other industries. Future studies are encouraged to extend the analysis to different industries under the service sector to further investigate the status quo of CSR/sustainability investment efficiency. Such examinations may explore the applicability of the available materiality guide in the service sector context so the findings of this current study may be employed with an enhanced generalizability. Also, as with other quantitative studies, the dependent variable of this study is not completely free from a possible endogeneity issue. Therefore, perhaps with a more accumulated body of relevant literature on CSR/sustainability materiality, the incorporation of methods such as instrumental variables would help future research in showing a clearer relationship between dependent and independent variables of interest. Another fruitful venue for future research is to employ a heuristics or psychological mechanism that mediates the stakeholders' (e.g., investors' and franchisees') evaluations of a firm's materiality performance of CSR/sustainability investing. Moreover, communications between intermediaries and stakeholders in shaping the evaluation and performance of a firm's CSR/sustainability investment will also make for interesting and valuable contributions.

sustainability reporting and materiality classification? Third, how will the standard setting institutions guide business entities if firms and the market overall do not agree with the suggested classification and standard? Although research on those questions are beyond the focus of the current study, they are viable areas to explore for CSR/sustainability standard-setting institutions such as the SASB. Accordingly, it may be suggested that the SASB involve industry stakeholder groups including franchisees as well as hands-on employees in charge in the restaurant industry who can offer more realistic views and opinions about CSR/sustainability practices of the industry to develop further evolved and up-to-date materiality classification. With better and more appropriate classification, the robustness test for all of the four proposed hypotheses can be replicated to further verify the suggested classification. In addition, managers who are committed to such initiatives regarding strategic CSR and sustainability may consider the current study's findings in allocating firms' scarce resources to make the most efficient sustainability investment and evaluating its effectiveness. Although SASB's materiality guide is industry-specific and serves as a useful and informative guide on corporate CSR/sustainability investment and accounting practices, this study's results imply that restaurant firms, especially those with or proceeding toward a high degree of franchising, are advised to learn their respective stakeholders' viewpoints. In particular, chief sustainability officers should consider conducting materiality analysis for their own firms in consideration of their degree of franchising and firm-specific key stakeholders. This is to learn how their stakeholders view material and immaterial CSR/sustainability investment and to further customize their investment strategies and reporting practices according to their unique circumstances and firm-specific factors in line with the recent conclusion from the materiality analysis report by GRI and RobecoSam (2015). For example, a firm may decide that specific topics in the SASB guide are not necessarily relevant to its business, and consider topics that are classified as immaterial or not even included in the guide when making strategic CSR/sustainability investment decisions. 6. Limitations and suggested future directions This study is not without limitations. First, CSR/sustainability items provided by the MSCI ESG database do not perfectly match with the likely material CSR/sustainability topics included in SASB's classification. Therefore, the researchers' subjective decision-making on the matching procedures was inevitable, although this measurement method is based on the previous literature. It would be of great use if CSR/sustainability standard-setting institutions and ESG data providers can cooperate and offer more specified guidelines or a standardized way of categorizing CSR/sustainability issues. In addition, although SASB states that the standards are updated based on balanced stakeholder consultation, more weight is given to shareholder and market evaluations rather than other stakeholder groups as SASB identifies issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore

Contributions Bora Kim Conceived and designed the analysis, collected and analyzed the data and wrote the paper. Seoki Lee Conceived and designed the analysis, performed the data analysis and wrote the paper. Declaration of competing interest None.

Appendix A SASB Materiality Map SASB's Materiality Map identifies likely material sustainability issues on an industry-by-industry basis. This map serves as a snapshot of likely material sustainability issues at the time of our initial analysis and may be subject to change as issues and industries are ever-evolving. When clicking on a highlighted cell at the sector-level and then on any highlighted cell at the industry-level to see suggested accounting metrics and additional information for each issue.

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Fig. A1. Sector Level Map.

A dark grey cell is likely to be material for more than 50% of industries in sector; A light grey cell is likely to be material for less than 50% of industries in sector; and a white cell is not likely to be material for any of the industries in sector. When clicking on a sector among the options as shown in, it expands to show the materiality classification of the issues for each industry under the sector. For example, a white cell is not likely a material issue for companies in the industry, while a dark grey cell is likely a material issue for companies in the industry.

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Zott, C., & Amit, R. (2007). Business model design and the performance of entrepreneurial firms. Organization Science, 18(2), 181–199. Bora Kim is a graduate student at School of Hospitality Management at the Pennsylvania State University. Her current research focus includes corporate social responsibility and sustainability. She studies her research topics in tourism and hospitality industry from the perspective of strategic and financial management.

Seoki Lee, Ph.D. is an associate professor of the School of Hospitality Management at the Pennsylvania State University. His research mainly focuses on hospitality and tourism issues in the financial and strategic management including following topics: corporate social responsibility, internationalization, franchising, and diversification.

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