The interest rate exposure of lodging firms

The purpose of this study is to investigate the interest rate exposure of lodging firms and to determine whether the use of interest rate derivatives reduces this exposure. Using a sample of 47 lodging firms from the period from 2000 to2004, the first stage regression results show that most lodging firms face exposure to interest rates. The key finding of this study is a significant decline in exposure even after controlling for interest and foreign exchange risk. Additional findings show firm size, floating rate debt, interest coverage ratio, and foreign sales ratio to be important determinants of interest rate exposure.     

Revisit to the determinants of capital structure: A comparison between lodging firms and software firms

This study validates the contradiction between capital structure theories and previous empirical studies, and it further identifies lodging firms’ unique leverage behavior through a comparison to software firms, using a generalized least squares analysis. This study also explores the joint effects of key financial leverage determinants. The findings indicate that fixed assets, growth opportunities, and the joint effect of these two variables are the significant long-term debt determinants of the lodging industry. The analysis of the joint effect also suggests that fixed assets and growth opportunities affect each other's relationship with long-term debt usage. With the findings on lodging firms’ unique financing rationale, authors hope to provide useful information for corporate financial planners and lending institutions regarding debt-financing behavior.     

Internationalization and exposure to foreign currency risk: An examination of lodging firms

Corporate internationalization has often been linked with exposure to risk arising from foreign currency valuation. The theory of economic exposure, however, postulates that when demand and activities are sensitive to purchasing power parities, the value of domestic firms can also be influenced by exchange rates. Suspecting that domestic lodging firms are subject to foreign currency risk, the current study applied a cash-flow model in order to quantify the operating exposure of US lodging firms against currencies that significantly account for visitors to the U.S. Heckman's two-step estimation was subsequently used to examine the effect of internationalization on estimated exposure coefficients. The results indicated that domestic firms are more likely to sustain foreign currency risk, as multinationals may be capable of diversifying away the risk. The higher foreign sales ratio of lodging firms led to greater foreign currency risk, while the increased degree of operational hedging and franchising mitigated the foreign currency risk of multinational lodging firms.     

Credit Fluctuations and Lodging Firms: An Investigation of the Differing Capital Structures in the U.S. Lodging Industry

In the area of corporate finance, decisions regarding the constituents of overall capital structure are the most critical. These financing decisions are even more critical to lodging firms because of the unique nature of the industry. This study empirically investigates the effect of credit availability on the leverage of the lodging industry in the U.S. using multivariate analysis of variance. Three time points of differing credit availability (low, high, and average) were identified using the Case-Shiller home price index. Leverage, net leverage, and short-to-long-term debt ratios of large and small U.S. lodging firms were analyzed at these differing credit availability time points to assess any significant differences. Significant effects of credit availability were found on the leverage and net leverage of lodging firms, but no significant effect was found on the short- to long-term debt ratio of U.S. lodging firms. Interestingly, the leverage levels were found to be highest at the average availability of credit than when compared to the high and low availability of credit.     

Asset-light business model: An examination of investment-cash flow sensitivities and return on invested capital

The purpose of this study is to investigate the effects of the asset-light business model on investment-cash flow sensitivities and return on invested capital in the lodging industry. Little research has explored the link between investment and asset ownership structure. The current study provides an alternative approach to examining investment behavior and return on invested capital, focusing on the unique characteristics of asset ownership among lodging firms. The findings of this study provide important implications for lodging investors and shareholders regarding the strategic use of the asset-light business model for aiding lodging firms’ efficient investments and delivering high return on invested capital.     

The value of cash holdings in hotel firms

Extant research in finance suggests asymmetric information increases the cost of external financing substantially and creates underinvestment problems. While franchising might reduce underinvestment problems, it might exacerbate overinvestment problems in poorly-governed firms. Using combined postulations from both the pecking order theory and the free cash flow theory, this study examines the value of cash holdings in hotel firms and the extent to which franchising, financial constraints, and corporate governance affect this value. The findings suggest that cash can be a curse and a blessing; cash is more valuable for financially constrained firms than for unconstrained firms and less valuable for poorly-governed firms than for well-governed firms. Also, financial constraints have a greater effect on the value of cash holdings than weak corporate governance. Although franchising could solve underinvestment problems, it makes poorly-governed firms more vulnerable to overinvestment. Practical and theoretical implications are discussed within realms of corporate finance and franchising.     

Institutional investor preferences for lodging stocks

Although investments from institutions such as banks, insurance companies and pension funds in the lodging industry increased enormously in the 1990s, there has been no empirical research that has examined institutional preferences for lodging stocks. Understanding institutional investment patterns can help provide easier access to the capital markets for hoteliers who make large capital expenditures. This study identifies the characteristics preferred by institutional investors and also assesses whether the different institutions have heterogeneous preferences. Our results show that, in general, institutions prefer the stock of large lodging firms. They also prefer lodging firms with high capital expenditure-to-asset ratios and high debt ratios.     

Acquisitions and shareholders' returns in restaurant firms: The effects of free cash flow,growth opportunities,and franchising

Restaurant firms extensively expand through acquisitions. While acquisitions can be an efficient business strategy, the extant literature presented evidence showing that acquisitions can be value–increasing or –decreasing investments. However, why acquisitions increase or decrease firm value is not clear. Corporate finance and franchising theories collectively suggest that the value of acquisitions may depend on firms’ free cash flow capacities, growth opportunities, and organizational forms. The purpose of this study is to examine the concurrent effects of free cash flows, growth opportunities, and franchising on restaurant firms’ returns from acquisitions. The results showed that firms with high-free cash flows gain lower returns compared to firms with low-free cash flows, suggesting that acquisitions reduce underinvestment problems but also increase overinvestment problems. Franchising firms also gain lower returns compared to non-franchising firms; however, the availability of free cash flows exacerbates overinvestment problems in franchising firms. Theoretical and practical implications are discussed.     

Foreign exchange exposure of US tourism-related firms

To date, literature on foreign exchange risk has paid a particular attention to multinationals in trade-related industries. The tourism sector is also sensitive to the exchange rates between travelers’ home countries and their destinations. Suspecting that the exposure of domestic tourism-related firms to foreign exchange risk results from price elasticity of demand, the current study tested the cash flow exposure of sample firms, accounting for nonlinearity, asymmetry, and lagged effects. As a result, a significant percentage (78%) of domestic tourism-related firms was found to have significant foreign exchange exposure. This study also found that exchange rate exposure for tourism-related firms was nonlinear, asymmetric, and lagged. The evidence implied that several tourism-related firms are passive regarding their exposure and may face financial burdens caused by demand fluctuations. Implications and suggestions are presented along with the findings of the study.     

Compensation practices in the lodging industry: Does top management pay affect corporate performance?

The current study examines the relationship between executive compensation and firm performance in the U.S. lodging industry. It is not clear-cut whether performance leads to compensation or compensation drives firm performance. Our contention is that cash and lagged equity-based compensation drive the firm performance. Our findings suggest that chief executive officer's (CEO) contemporaneous cash-compensation and one-year lagged equity-compensation positively affect the accounting performance measures return on assets and Tobin's Q; but neither compensation components affects the market-performance measure, stock returns, in the lodging industry. Quantitatively similar findings are found for the chief financial officer (CFO). Further robustness test show that further lags of equity compensation of both named executives do not result in increased stock performance in the lodging industry.     

Do hotel REIT companies face investment constraints? A comparison with C-corporation hotel companies

This study investigates whether corporate investment by REIT hotel companies (hotel REITs hereafter) is more constrained than investment by C-corporation hotel companies (hotel C-corps hereafter). The investments of hotel REITs and hotel C-corps are examined by comparing the sensitivities of investment to cash flow and investment opportunities between the two groups. Results show that the sensitivity of investment to cash flow is positive and significantly higher for hotel REITs than for hotel C-corps, suggesting that hotel REITs are likely to experience more constraints on their corporate investment. This finding suggests that hotel firms and owners should be more cautious about electing to be a REIT if they are planning large investments in the future. In addition, this finding has policy implications; even a small reduction in the rate of mandatory dividend payouts could significantly increase hotel REITs’ corporate investments.     

Tacit knowledge spillover and sustainability in destination development

This study examines tacit knowledge spillover among lodging firms within a destination and how it contributes to sustainable destination development. Longitudinal data for this study were collected primarily through in-depth interviews with lodging firms' managers and operators in a destination located in southern China. The findings suggest that tacit knowledge spillover in a region may lead to hospitality firm agglomeration. Furthermore, the eco-friendly hotel pioneers' tacit knowledge spillover may, over an extended time period, enhance the eco-friendly initiatives and operations of local hospitality firms, which may contribute to the successful development of sustainable destinations. The findings also indicate that local government's effective interventions tend to encourage and facilitate tacit knowledge spillover through establishing knowledge transfer mechanisms in the community, which is significant in the context of sustainable destination development.     

Board structure and CEO compensation: Evidence from U.S. lodging industry

Using a sample of U.S. lodging firms, this paper examines the relationship between board of director characteristics and chief executive officer (CEO) compensation. Previous research shows that larger boards are detrimental to the effectiveness of the board of directors and deteriorate the control imposed on CEO actions and pay. Board independence is also suggested as an important quality to emphasize the control on the CEO. We propose that U.S. lodging firms’ board of directors provide a nice setting to investigate the effects of size and independence on CEO compensation level. Our findings suggest that CEO compensation is not related to board size, and positively related to proportion of the outside board members. These findings are contrary to the findings of previous studies. Our findings may provide significant insights to lodging firms’ board of directors to structure efficient compensation packages.     

Determinants of using operating lease in the hotel industry

This study investigated the determinants of using operating lease in the hotel industry. The hotel industry has utilized operating lease not only for operating equipment but also as a financing instrument through ‘sales and lease back.’ This study found that hotel firms with less internal funds and/or with higher debt ratios are more likely to use operating lease. Contrary to the studies of other industries, hotel firms with less financially distressed are more likely to use operating lease. This study indicated that operating lease decrease as firm size increases, but only up to a certain level, after that level operating lease increase as firm size increases. Contrary to our expectations, the growth opportunity of hotel firms appeared to have no relationship to use of operating lease. These findings contribute to further understandings of hotel industry-specific information regarding what drives hotel firms to use operating lease.     

Working capital,cash holding,and profitability of restaurant firms

Efficient working capital management is becoming important for restaurant firms coping with weak financial conditions and increased economic uncertainty. This study investigates the impact of restaurant firms’ working capital on their profitability. We further examine the effects of firms’ cash levels on the relationship between working capital and profitability. The findings ascertain a strong inverted U-shape relationship between working capital and a firm's profitability, which indicates the existence of an optimal working capital level for restaurant firms. This study also reveals that a firm's cash level is an important factor for efficient working capital management. The results suggest that interactive effects exist among working capital, cash levels, and profitability. Thus, restaurant managers should consider these different roles and impacts when developing an efficient working capital management strategy. Detailed results and implications are presented in the main body of this paper.     

Predicting Korean lodging firm failures: An artificial neural network model along with a logistic regression model

Using financial variables as predictors, this study developed logistic regression and artificial neural network (ANN) models to predict business failures for Korean lodging firms. While both models demonstrated comparable Type I errors, the ANN model showed considerably lower Type II errors for both in-sample and hold-out sample predictions. This study also found that interest coverage is the most important signal of business failure for the Korean hotel industry. This ratio is directly related to the hotel's solvency, ability to service debts and productivity of profits and can thus be regarded as a survival indicator of Korean hotel firms.     

Disruptive innovation,innovation adoption and incumbent market value: The case of Airbnb

The purpose of this article is to analyze the market value impact of actions taken in response to disruptive innovation; specifically, actions that incumbent lodging firms implement to adopt the innovation of peer-to-peer trading-based accommodation rental. As incumbent firms need to device strategies to accommodate the disruption stemming from a new entrant with a disruptive business model, we analyze the differentiated efforts of four incumbent lodging firms to compete with the peer-to-peer lodging firm Airbnb. This study is the first to quantify the effects of innovation on incumbent tourism firms challenged by a disruptive entrant. It finds that adoption speeds, that is first vs. late adoption, make a difference as the former are awarded a significant increase in market value.     

Asset-light strategy and real estate risk of lodging C−corps and REITs

The asset-light strategy has been gaining popularity among practitioners for its virtues in lowering capital investment burden and allowing efficient expansion. Meanwhile, arguably the greatest advantage of the strategy—a mitigating effect on the real estate risk exposure—has yet to be validated. To empirically test this effect, this study adopts a comparative approach, utilizing data on both lodging C-corporations and real estate investment trusts (REITs). Yearly firm-level real estate betas are estimated through an augmented Fama-French asset-pricing model for all lodging firms and REITs between the years 2002–2016, and further used for a second-stage analysis on their relationship with real estate ownership and liquidity. Findings reveal that 1) lodging firms are significantly less exposed to real estate risk than REITs, 2) lodging firms may still be conditionally exposed to real estate risk under liquidity constraints, and 3) certain unique characteristics of REITs render differences in the effects of liquidity.     

Using commercial mortgage loans to assess risk and return in the lodging sector

The purpose of this study is to investigate the risk and return features of the lodging sector using a large sample of 16,898 commercial mortgage loans securitized into commercial mortgage-backed securities (CMBS) in the U.S. between 2010 and 2018. The results of the analysis show significantly lower loan-to-value (LTV), higher debt service coverage ratios (DSCR), and higher credit spreads in the lodging sector than all other commercial property sectors. Additional findings document significantly higher lodging sector capitalization rates and equity dividend rates. Taken together, the results of the study provide strong empirical support for the positive relationship between risk and return in the lodging sector. Therefore, investors will require higher returns to compensation them for the additional risk of investing in the lodging sector. The theoretical and practical implications of these results are also discussed.     

Determinants of corporate cash-holding levels: An empirical examination of the restaurant industry

This study examines the determinants of cash-holding levels for restaurant firms. After examining a panel data set obtained from 125 publicly traded US restaurant firms between 1997 and 2008, the study provides evidence that restaurant firms with greater investment opportunities tend to hold more cash. At the same time, large restaurant firms, firms holding liquid assets other than cash, firms with higher capital expenditures, and firms paying dividends were shown to hold less cash. The results are generally supportive of the trade-off theory of cash holdings. In particular, both precautionary and transaction motives play important roles in explaining the determinants of cash holdings for restaurant firms.