UNIVERSITY PARK, Pa. — Celebrity chief executive officers (CEOs) do not necessarily take more business risks than other CEOs in the restaurant industry, but restaurants with celebrity CEOs can take more risks when celebrity status is combined with other factors, according to findings from researchers in the Penn State School of Hospitality Management.

The team found that restaurants with celebrity CEOs may exhibit more risk-taking behavior — in this case, the risks are financial and related to a restaurant’s investments — when these CEOs are hired from outside the company or if the business is increasingly active in franchising. Led by Seoki Lee, professor of hospitality management at Penn State, the researchers published their findings in Tourism Economics.

In context of this research, a celebrity CEO is not necessarily a movie star or someone with international recognition, but rather someone who acquires a lot of media attention in tandem with their restaurant. The researchers determined celebrity CEO status by the number of media mentions that included both a CEO’s and their company’s name.

“This has been an underexplored topic in hospitality and restaurant management,” Lee said. “When we think about the restaurant industry, we believe that this issue is more pronounced because CEOs in this industry exert more managerial discretion and have greater influence on strategic decisions and overall performance than CEOs in other industries.”

To learn the impact of celebrity CEO status on risk-taking behavior in the restaurant industry, the researchers gathered data from FACTIVA, a business information and research platform, that included 51 unique publicly traded restaurant companies and 108 distinct CEOs within the United States.

The researchers then examined the effects of celebrity status on risk-taking behavior via generalized estimating equations (GEE) modeling, a way to computationally analyze correlated data. The research team also investigated whether risk taking was associated with hiring celebrity CEOs from outside the company and expanding franchises of the restaurant chain.

The researchers used capital investment, research and development, and acquisition metrics to measure risk-taking behavior.

“CEOs are making a bet when it comes to dollars spent toward capital investment, research and development, and acquisition — not all that investment money will turn out to be beneficial to the business,” Lee said, explaining that the higher the capital investment, research and development spending, or acquisition levels, the higher the potential risk to the company.

When the researchers separated the sample into two groups — CEOs hired from outside of a company and CEOs promoted from within a company — they found that celebrity status aggravated risk-taking behavior for companies who externally hired CEOs.

Franchising also produced a significant moderating effect between celebrity status and risk-taking behavior. Restaurants typically franchise to help reduce risk, as this provides multiple income streams and reduces agency costs, according to Lee. Accordingly, increased franchising likely helps companies to absorb more risk-taking behavior from a CEO.

“If investors want to take more risks, they can use this franchising, outside hire status and celebrity CEO information to develop their own investment portfolio or modify their current investment portfolio.” Lee said. “They can gain insight into which restaurants may act with more risk than others.”

Lee said companies should consider their strategies and how risk averse they want to be in the hiring process for CEOs. For example, if a company wants to potentially lessen risk-taking behavior from its CEO, it could look to hire internally rather than externally.

“Shareholders, a board of directors or the hiring committee should have their own process and preference regarding risk-taking behavior when hiring for a CEO position,” Lee said. “When companies hire a CEO, especially one from outside of the company, then they should look at candidates’ celebrity status to make sure it matches their preferred risk-taking behavior.”

Bora Kim of the University of Surrey collaborated on this research.