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Financing behaviors of hotel companies
Abstract
To understand financing behaviors in the hotel industry, this study used canonical correlation analyses by examining the interrelationships between cross-balance-sheet accounts of hotel companies. The study confirmed that hotel companies followed the four common practices about the cross-balance-sheet interdependencies identified in the other industries. This study also discovered a few unique financing features of the hotel industry: (1) maturity mismatching between property, plant, and equipment (PPE) and short-term liabilities; (2) adjusting the funding sources of inventories according to the internal and external environments; and (3) high dependency of operating assets on stockholder's equity. This study also explains different financing features across three periods during 1990-2004. The findings are expected to contribute to developing knowledge about the financing behaviors of hotel companies as related to their asset structures.
... Trade-off theory suggests that the capital structure is optimal when firm value is maximized. When the capital structure is optimal, the marginal benefits of debt are equal to the marginal costs of debt, which leads to the maximization of firm performance (Jang, Tang, & Chen, 2008;Tang & Jang, 2007). Debt is a cheaper source of financing than equity financing because it is tax deductible. ...
... Moreover, agency conflicts also affect the capital structure. In sum, leverage has a direct relationship with tangibility, profitability, and firm size, and it diminishes with volatility and growth opportunity (Jang et al., 2008;Tang & Jang, 2007). However, the pecking-order theory shows that leverage declines with profitability, volatility, tangibility, and firm size, whereas growth opportunity has mixed orientation towards leverage (Jang, 2011;Jang & Park, 2011). ...
... See(Dechow & Skinner, 2000;Healy & Wahlen, 1999;Schipper, 1989).7 This assertion is ultimately reversed, indicating that firm value is maximized when financing is completely through debt(Jang et al., 2008;Modigliani & Miller, 1963).8 In this argument,Myers (1984) defined "safe debt" as newly issued debt, which is free of default risk. ...
This study examines the role of earnings management in the relationship between firm performance and capital structure, dividing earnings management into discretionary and nondiscretionary accruals to test established theories on the capital structure. Using data on 802 companies in the member countries of the Asia-Pacific Trade Agreement (APTA), our findings reveal that, in the absence of earnings management, the relationship between the capital structure and firm performance follows the trade-off theory or the pecking-order theory. Our results are consistent with agency theory only through managers’ intervention via earnings management. In India, substantial opportunistic behavior in discretionary accruals is observed, and management seems to focus on manipulating capital structure performance in opportunistic ways. Furthermore, discretionary earnings are focused more on hiding asset inefficiency that arises from forced increases in firm size, reducing earnings risk. These practices reduce the impact of the capital structure on firm performance. This study has vital implications for debt managers and performance analysts in APTA member countries. Rather than testing the applicability in a traditional way, this study recommends dividing earnings management into discretionary and nondiscretionary accruals to test capital structure theories. Because nondiscretionary accruals play a dominant role in earnings management, firm behavior is consistent with trade-off or pecking-order theory, as seen in patterns in the relationship between the capital structure and firm performance, whereas agency theory holds only after external intervention by managers in terms of earnings management.
... The findings of these studies might not be generalizable to the distinct financial culture and regulations of Asian developing countries including Iran (Zhao et al., 2017). A better understanding of the factors that deter tourism business founders from using crowdfunding contributes to funding decision and financial management improvement of tourism businesses and the development of tourism industry (Jang and Kim, 2009;Jang et al., 2008;Sheehan and Ritchie, 1997;Jang and Park, 2011). Furthermore, it contributes to enhancing the probability of tourism businesses' crowdfunding success which has not been examined by previous studies. ...
... This study is one of the first empirical attempts that explores the factors that prevent capital seekers from using crowdfunding (Gerber and Hui, 2013;Davidson and Poor, 2015), particularly in tourism (Kim et al., 2020). By focusing on the lived experiences and real decisions of tourism business founders, the findings of this research extend the few studies on financing decision of tourism business founders (Jang and Kim, 2009;Jang et al., 2008) and financial management of tourism businesses (Sheehan and Ritchie, 1997;Jang and Park, 2011). This study also contributes to the limited literature on crowdfunding in tourism Grèzes et al., 2015;Camilleri, 2018;Dzhandzhugazova et al., 2017;Kim et al., 2020;Li et al., 2016) and the factors that influence crowdfunding success for tourism businesses (Beier and Wagner, 2014). ...
... The findings of this research inform both tourism business development and crowdfunding. First, our findings expand the limited knowledge on financing behavior of tourism businesses (Jang and Kim, 2009;Jang et al., 2008;Sheehan and Ritchie, 1997;Jang and Park, 2011) and particularly tourism business founders which have not yet been established in the literature. We also contribute to the success of tourism business crowdfunding by exploring the factors that deter tourism business founders from using crowdfunding. ...
Crowdfunding has been recently suggested as an effective means for tourism business founders to gain financial support. Yet, few business founders in tourism have employed the method to fund their business creation and development. Using the behavioral decision model in complex and uncertain business situations, this qualitative study explored the deterrents to crowdfunding adoption and the factors that shape the perception of the deterrents in tourism business founders. The data collected by in-depth and face-to-face semi-structured interviews with 22 informants. Our findings revealed a combination of perceived personal, social and contextual deterrents that avert crowdfunding adoption decision and actual behavior. More specifically, our analysis explored attitude towards crowdfunding, perceived control over using crowdfunding, social norms and perceived contextual feasibility of crowdfunding as the determinants of crowdfunding aversion decision and aversion behavior. This study contributes deeper insights into tourism business financial management and crowdfunding policy, theory, practice and research development.
... However, if the cost of debt becomes too high, or debt capital becomes more difficult to find (as was the case during the global financial crisis of late 2008 and early 2009), firms may resort to selling common stocks or even lodging assets in raising funds. A good example was Las Vegas Sands' offering of US$525 million worth of common stocks, preferred shares and warrants to avoid defaulting on its loans in late 2008 (New York Times, 2008 Dalbor and Upneja (2002); Dalbor and Upneja (2004); Jang and Kim (2009);Jang and Ryu (2006); Jang et al. (2008); Kim and Gu (2004); Tang and Jang (2007); Upneja and Dalbor (2001a); Upneja and Dalbor (2001b) Short-term debt Upneja and Dalbor (2001a); Jang and Kim (2009);Jang and Ryu (2006) Interest rate Corgel and Gibson (2005); Kim and Gu (2004); Singh and Upneja (2007); Singh and Upneja (2008), Singh (2009b) Leasing behavior Koh and Jang (2009); Upneja and Dalbor (1999); Whittaker (2008) Equity ...
... Dividend policy Borde et al. (1999); Canina et al. (2001); Dalbor and Upneja (2007); Kim and Gu (2009);Oak and Dalbor (2008b) Financial condition and performance Bankruptcy Dalbor and Upneja (2002); Dalbor and Upneja (2004); Diener (2009);Gu (2002); Jang et al. (2008); Kim and Gu (2006a); Kim and Gu (2006b); Upneja and Dalbor (2001a); Upneja and Dalbor (2001b); Youn and Gu (2009) Firm performance determinants Canina and Carvell (2008); Chathoth and Olsen (2007a); Chi and Gursoy (2009);Hua and Upneja (2007); Jung (2008); Kang et al. (2009);Ketchen et al., 2006;; Koh et al. (2009a); Koh et al. (2009b); Lee, 2008(b); Lee and Park (2009);Madan (2007); Madanoglu, Erdem and Gursoy (2008); Madanoglu, Lee and Kwansa (2008); Mao and Gu (2008);McGehee et al. (2009);Park and Lee (2009);Prasad and Dev (2000); Tsai and Gu (2007a); Tsai and Gu (2007b); Youn and Gu (2007) CEO compensation and turnover Barber et al. (2006); Barber et al. (2009);Kim and Gu (2005); Gu and Choi (2004); Madanoglu and Karadag (2008) Table II. ...
... On the other hand, short-term assets are more likely to be financed using short-term liabilities . Such firms should be able to negotiate more preferable debt arrangements, regardless of the associated risks, than their counterparts with lower fixed assets, because the latter can serve as collateral (Tang and Jang, 2007;Jang et al., 2008). Older and more profitable firms with better cash flow seem not to need long-term debt (Upneja and Dalbor, 2001a). ...
Purpose
The purpose of this paper is to review and synthesize published contemporary hospitality financial management research from 1998 through 2009 and provide future research directions.
Design/methodology/approach
The authors began their initial literature search by entering into the ABI/INFORM database via ProQuest 19 pre‐identified keywords (i.e. debt, financing, ownership) related to the major functions of financial management, namely investing, financing, and dividend decisions, as well as commonly indexed keywords in hospitality finance research. The paper then expanded the authors' literature list through the reference lists of the studies that they initially identified. The authors limited their search to published studies between 1998 and 2009 and within hospitality journals written in English.
Findings
The paper identifies 98 published papers that represented the major work and efforts in expanding the body of knowledge in both the theoretical and practical perspectives of hospitality financial management. The major categories of papers include hospitality financing, investing, dividend policy, financial condition, and performance. Areas that warrant further investigation are noted throughout the paper.
Research limitations/implications
The papers review provides academics and practitioners an overview of the updated body of knowledge in the field and suggests the need for further in‐depth research to extend the literature and prompt better financial decision making for practitioners.
Originality/value
Since Harris and Brown's and Atkinson and Jones's reviews of past hospitality accounting and finance studies which mostly focused on the former, hospitality financial management research alone has grown noticeably in terms of diverse topics and sophistication of methodologies. To the authors' knowledge, no updated reviews that focus solely on hospitality finance research have been published in the last 12 years, and the need for such a task motivated them to conduct a review of recent research on this topic.
... Several studies have investigated the determinants of capital structure decisions among hospitality firms across the globe (Devesa & Esteban, 2011;Dewally et al., 2017;Jang et al., 2008;Karadeniz et al., 2009;Madan, 2007;Serrasqueiro & Nunes, 2014) but such studies are limited in India. The Indian firms are unique in terms of corporate governance practices (Mishra & Mohanty, 2014), policy implications (Milelli et al., 2010), corporate financial structure (Green et al., 2003), dividend policy and ownership structure (Roy, 2015). ...
... Tang and Jang (2007) studied the behaviour of lodging and software firms towards leverage and found the interaction between fixed assets and growth of firms to be positively and significantly associated with leverage. Jang et al. (2008) argued that fixed assets play an important role in the determination of capital structure, and hospitality sector firms invest huge amounts in fixed assets. ...
This study investigates the determinants of capital structure for hospitality firms listed in India. The study validates the contradiction in the determinants of capital structure by using the data for firms listed on the Bombay Stock Exchange. Using fixed-effects regression models, the findings indicate that firm size and return on assets are significantly associated with total debt ratio (TDR), long-term debt ratio (LTDR) and short-term debt ratio. The variables such as growth rate, tangibility and volatility are found to be significantly associated with TDR and LTDR. Non-debt tax shield is found to be significantly associated with only TDR. Each of the stated determinants has a unique impact on capital structure decisions. The study partially confirms the applicability of the pecking order theory for hospitality sector firms. With the findings on hospitality firms, we hope to provide useful insights to lending institutions and corporate executives.
... In one hand, we find studies which analyse the influential factors in the capital structure of the hotel sector (Jang, Tang & Chen, 2008;Devesa & Esteban, 2011;Serrasqueiro & Nunes, 2014;Pacheco & Tavares, 2017) and how it affects to structure debt, internal and external, concluding that hotel companies acquire debt according to their needs. First of all, they decided to choose internal financing, and secondly, they acquire external financial (preferably they opt to request financial loans). ...
... Moreover, Serrasqueiro and Nunes (2014) concluding that hotels increase their debt in function of i) country economic situation, ii) economic opportunities, iii) risk level and iv) size of the total active. However, Jang et al. (2008) explore how financing behaviours have evolved by comparing the three different periods of an economy, specifically, 1990-92, 1996-98 and 2002-04. Therefore, this study aims to understand how affect the economic/financial changes of the hotel industry. ...
- Purpose: Analyse some of the financial ratios to see the impact of the economic crisis on 5-star hotels in Spain.
- Design/methodology: The information needed to write this article was taken from the Iberian Balance Sheet Analysis System (SABI), the Hotel Occupancy Survey published periodically by the National Statistics Institute, the IDESCAT and the official websites of the hotels analysed.
- Findings: The results obtained show how the financial crisis did not have a direct impact on luxury hotels, but on the contrary, they continue to increase their success thanks to the best continuous strategies. One test is the luxury hotels that were created in Barcelona and Madrid between 2008 and 2011. The work shows that it does not take into account for a hotel chain to have more than one luxury hotel in the same city, since one both of them may end up showing financial losses. It is also found that it is important to determine the number of rooms that the hotel must have in order to avoid construction costs and to have the maximum efficiency.
- Research limitations/implications: The study has the problem of not updating the SABI database. In some cases, the information has not been updated since 1990.
- Practical implications: The result that luxury hotels can cover the fixed assets coefficient with their equity. At the same time, it supports the importance of making a better forecast of the number of rooms in order to help them have a better financing.
- Social implications: It supports the importance of a single luxury hotel in the same hotel chain in the
same city and of making good strategic planning in order to improve the results of financial ratios.
- Originality/value: The article helps explain how the tourist model in Spain has changed since the beginning of the financial crisis.
... Apart from being one of the most competitive businesses, several characteristics of hospitality firms may lead to particular cash holding policies. Firstly, hospitality companies traditionally present high fixed costs as a result of capital investment in land and building, which, on the one hand, decreases flexibility and increases the leverage ratio when those assets guarantee debt (Jang, Tang, & Chen, 2008;Kizildag, 2015). On the other hand, exit barriers are higher since it is difficult and costly to find an alternative use of the property what makes firms to stay in the industry even the profits are decreasing or nonexistent. ...
... Second, the services of hospitality firms are substitutable as the industry does not have long-term contracts such as mortgage payments, health services, cell phones or education (Singal, 2015). Lastly, hospitality firms present high volatility of operational cash-flow as the seasonal nature of tourism business leads to high operational risks (Jang et al., 2008). ...
This paper examines the relationship between geopolitical risks (GPR) and corporate cash holdings in emerging countries, where such kind of risks are more relevant. Our sample consists of 166 hospitality companies from seven emerging economies (Malaysia, Mexico, Thailand, Turkey, Argentina, Brazil and China) for the period 2008–2017. The results show that geopolitical risks negatively affect cash holdings of hospitality firms, confirming the high dependence of hospitality business on geopolitical sways. We also test if our findings are relevant when considering ALFO strategy in hospitality companies. The findings are robust to alternative models and selection of sub-samples. This study adds to the incipient literature on hospitality companies' cash holdings determinants by considering GPR as an alternative measure of uncertainty in the hospitality industry. Consequently, this paper contributes to enhancing the understanding of hospitality firms' business characteristics, highly sensitive to geopolitical risks.
... Compared to other businesses in the service sector, hospitality firms have unique characteristics that may affect SME financing behavior ( Jang et al., 2008). For instance, hotels and restaurants are characterized by higher levels of volatility from unstable cash flows and demand uncertainty ( Newell and Seabrook, 2006) and higher operational risk due to their sensitivity to systematic risks (Devesa and Esteban, 2011). ...
... In addition, both collateralized fixed assets and financial statement audits are important factors associated with greater levels of access to capital for hospitality SMEs. These results are consistent with previous literature suggesting greater ability for hospitality SMEs to obtain financial requirements in order to have greater access to external financing, and therefore, offsetting the industry's operational risks and demand uncertainty ( Jang et al., 2008;Serrasqueiro and Nunes, 2014). While SMEs in the service sector may still reduce credit constraints, provided they have the appropriate financial requirements, a potential explanation for the greater effects in the hospitality industry may lie in the total value of the collateralized fixed assets. ...
Small- and medium-sized enterprises (SMEs) in the service and hospitality industries are critical for economic development in Latin America. However, due to information asymmetries, access to capital is a major obstacle for SMEs to expand their activities. Drawing from agency theory, the purpose of this study was to examine the financial constraints of SMEs in the service sector, particularly the case of hospitality firms in Latin America, due to requirements associated with mitigating information asymmetries. Using a logit model, we investigated whether financial requirements acting as mechanisms to mitigate information asymmetries, such as fixed asset collateral requirements and financial statement audits, would be associated with credit constraints for small- and medium-sized firms. We further investigated whether, due to their unique financing characteristics, SMEs in the hospitality industry would be less credit constrained than other industries in the service sector. Results suggest that SMEs subjected to collateralized fixed assets and auditing requirements, separately, were more likely to be credit constrained. However, our findings indicate that both financial requirements, when used together, decreased the likelihood of credit constraint for SMEs in the hospitality industry.
... Upneja and Dalbor (2001) state that hospitality firms with high levels of investment in fixed assets such as land, buildings and property rely more on debt. Consequently, those firms are more likely to finance fixed assets through debt (Jang et al, 2008), because they have better terms of access, given the possibility of using fixed assets as collateral. ...
... The fact that debt does not stimulate hotels' growth means we cannot corroborate the previously formulated H5. The fact of not finding a positive relationship between debt and growth in hotels does not allow us to corroborate the conclusions of Tsai et al (2011) that hotel sector firms prefer debt to external equity in financing their activities, which once again does not corroborate the conclusions of Upneja and Dalbor (2001) and Jang et al (2008) that the higher level of collateral in hotel sector firms contributes to easier access to debt, meaning greater use of debt in the activities of this type of firm. ...
Using dynamic panel estimators, based on a sample of 177 small-and medium-sized Portuguese hotels for the period 2000–2009, this paper studies the determinants of growth in small-and medium-sized Portuguese hotels. The multiple empirical evidence obtained allows the authors to conclude that: (a) small hotels grow more quickly than large ones, but only for lower levels of size; (b) age and the financial crisis of 2008 are restrictive determinants of growth in small-and medium-sized Portuguese hotels; and (c) cash flow, government subsidies and labour productivity are positive determinants of growth in small-and medium-sized Portuguese hotels. The authors also find that the financial crisis has increased the importance of cash flow and government subsidies for increased growth in small-and medium-sized Portuguese hotels. Finally, the financial crisis of 2008 has contributed to the role of debt and interest paid as restrictive determinants of growth in these hotels.
... Since the concept defined by (Modigliani and Miller, 1958) that firm value is not associated with the capital structure decision but the choice in between the debt and equity mixture is a main topic in corporate finance literature. However after the revision of this concept they have further stated the fact that corporate value can be maximized when the firm is entirely finance by the debt (Modigliani and Miller, 1963;Chen, 2008). In order to get the complete understanding of corporate performance with respect to capital structure three major theories are discussed over here: Trade off Theory: The core assumption behind the trade off theory is that there is an optimal level of capital structure through which the value of the firm is maximized. ...
... In order to get the complete understanding of corporate performance with respect to capital structure three major theories are discussed over here: Trade off Theory: The core assumption behind the trade off theory is that there is an optimal level of capital structure through which the value of the firm is maximized. This concept has been explained by (Chen, 2008;Tang and Jang, 2007) who have stated that at an optimal point of capital structure is one in which marginal benefit of the debt is most likely equal to the marginal cost of the debt. By making comparison of both the debt and equity financing debt is to be considered as less expensive because it is a tax deductible expense but more risky for the business. ...
Using the firm level pannel data analysis, this study develops to explore the preliminary determinants of capital structure of banking firms of Pakistan. The findings discover the idea of major determinants from the perspective of previous theories of capital structure are size of the firm, profitability in terms of return on assets and return on equity after taxes and Gross Domestic Product GDP over a period of time. The capital choice decision for the banking firms in Pakistan is symmetric to the pecking order theory explaining the fact that there is negative and sigfncaint association between leverage and return on equity after taxes. The significant difference across the banking firms and some financial limitation are the factors which are influencing the decision of debt-to-equity mixture. We have used Pannel Data models like least square dummy variable model LSDVM, Fixed effect mode, random effect model and pooled regression mode. Through statistical tests our results are in favor of random effect regression outcomes. Furthermore outcomes are quite beneficial for the managers while defining the optimum level of debt to equity mixture especially in the banking sector.
... For example, the trade-off theory posits that the capital structure of any firm has an optimal level which maximizes the value of the firm. It maximizes the performance as the marginal benefits gained from debt align with the marginal debt costs (Tang and Jang, 2007;Jang et al., 2008). Debt benefits the business as it deducts tax interest making it cheaper than equity financing. ...
Purpose: This research investigates the influence of international diversification and firm life cycle on the leverage of non-financial sector firms of the Middle East and North Africa (MENA) region. Methodology: The objective is examined using financial and macroeconomic-related data from 1,985 firm-year observations collected for the period 2016 to 2020. The research focuses on the non-financial sector firms of the MENA region. The research also extends to cover the impact specifically for the GCC and non-GCC regions. The research model is analysed using a panel regression analysis and checks for robustness through system generalized methods of moment (GMM). Results: The findings of this study suggest that an increase in international diversification leads to an increase in the firms' leverage. The firms in the introductory and growth stage take on more debt than those in the mature and shakeout stage. The results also report that firm-related factors such as tangibility and return on assets are negatively related to leverage. The results are consistent across the MENA, GCC and non-GCC regions. Originality: This study provides insights into the role of diversification through international sales and firm life cycle in firm decision-making on capital structure for an emerging market. This is one of the first studies to extend the investigation of the research model for both GCC and non-GCC regions.
... According to the Trade-Off theory, more profitable companies should choose more to debt to benefit from the interest tax deduction. Jang et al. (2008) suggest a positive relationship between profitability and debt because firms with a greater ability to create and maintain results have greater bargaining power and, therefore, more easily borrow from creditors. In the Signal theory, Modigliani and Miller (1963) and Ross (1977) argue for a positive relationship between profitability and debt level, because management send signals to the market that firms have good profitability prospects in future. ...
This paper studies the financial determinants of debt of Portuguese hotel companies using the main indicators suggested by the Trade-Off and the Pecking Order theories. The main objective of this study was to analyse the determinants that most contribute to the debt of Portuguese companies in the hotel industry. The study also aimed to understand the impact of crisis periods on the debt. Since data collected refers to the period between 2005 and 2020 it also analyses the impact of the 2008 financial crisis and, more recently, the global pandemic COVID-19. The results show that debt is negatively associated with profitability and age, and is positively associated with size, growth opportunities and tangibility. These results are in line with the Pecking Order theory, ranking the choice of financing methods. We can also conclude that the way hotels finance their assets will affect their level of debt. We also evidence that debt of Portuguese hotels companies increases in periods of crisis. Keywords: Debt; Hotels companies; Crisis; Capital Structure
... The trade-off theory suggests that the most profitable firms have a greater ability to attract external finance (Jang et al. 2008) and therefore prefer to use debt to exploit the benefits of the deduction of interest tax (Modigliani and Miller, 1963). ...
This paper intends to analyze the determinants of hotel SMEs' capital structure, using the theoretical reference framework and the main indicators suggested by the Trade-off and the Pecking Order theories. The financial information was collected from the AIDA database and concerned a sample of 145 Italian hotel SMEs. To evaluate the capital structure, we used a set of dependent (Total Debt, Long Term Debt and Short-Term Debt) and independent (Profitability, Assets Tangibility, Growth, Size and Age) variables consolidated in the literature. After testing the least-squares model (POLS) and the fixed effects model (FEM), we chose to use the FEM model for our analysis, as it had a greater explanatory capacity. The results showed that the variables considered have a different weight in explaining hotel companies' capital structure. In particular, profitability, assets tangibility and size were the most significant variables, while the growth and age showed less relevance.
... It also supports other studies, including Cassar and Holmes (2003) (2015), Burgstaller and Wagner (2015), and Matias and Serrasqueiro (2017). Nonetheless, it does not support the point of view of other studies (e.g., Bhaird & Lucey, 2010;Jang et al., 2008). Also, the negative relationship observed between age and debt suggests that more mature SMEs in Ghana, unlike new ones, have a superior ability to generate and retain profits to meet their funding needs and so the inclination to resort to outside sources of financing is low. ...
The objective of this study was to examine the theoretical predictions of the pecking order theory and the trade-off theory to establish which of the two competing theories better explains the financing decisions of small and medium enterprises (SMEs). The study examined 187 SMEs in Ghana using the panel data methodology. The results reveal that the explanatory power of both theories apply and are pertinent to Ghanaian SMEs. The results also show that profitability, age, liquidity, growth, size, and tangibility of assets all have a significant impact on SMEs’ capital structure. In addition, the findings show that risk plays no vital role in how SMEs choose their capital structure. Broadly, the results provide evidence to back the pecking order theory, indicating that Ghanaian SMEs’ funding decisions exhibit the theoretical predictions of the pecking order theory.
... When it comes to the relationship between earnings, debt and liquidity Huberman (1984) came to the results that low earnings are associated with low liquidity, and external financing is negatively influencing the liquidity. The determinant used in this research match up with the determinants used by Soo Cheong, Chun-Hung & Ming-Hsiang (2008)this study used canonical correlation analyses by examining the interrelationships between cross-balance-sheet accounts of hotel companies. The study confirmed that hotel companies followed the four common practices about the crossbalance-sheet interdependencies identified in the other industries. ...
The objective of this brief general market analysis is to determine with the VRIO framework
how the Posadas group has managed to maintain itself in the Mexican lodging market. The aim is to
understand how in the current panorama of tourism are the main challenges of the Posadas group. The
main question that generated this analysis was: Is Grupo Posadas the current leader in the hospitality
sector in Mexico? The hypothesis is that the strategies implemented by Grupo Posadas have allowed it
to remain in the lodging sector; however, the current elements are not strong enough to be the market
leader. So, combining the analysis elements of the market and the VRIO, results were obtained that
pointed to Posadas shares, the leadership with IHG Hotels which begins to generate a more marked
oligopolistic competition in the field of tourism
... When it comes to the relationship between earnings, debt and liquidity Huberman (1984) came to the results that low earnings are associated with low liquidity, and external financing is negatively influencing the liquidity. The determinant used in this research match up with the determinants used by Soo Cheong, Chun-Hung & Ming-Hsiang (2008)this study used canonical correlation analyses by examining the interrelationships between cross-balance-sheet accounts of hotel companies. The study confirmed that hotel companies followed the four common practices about the crossbalance-sheet interdependencies identified in the other industries. ...
... Firms may face challenges in dealing with the changes efficiently. Moreover, hospitality firms are also subject to interest rate risk as companies have high debts (Jang, Tang, & Chen, 2008). Besides, hospitality firms are exposed to seasonality and high volatility in operating cash flows (Hsu & Jang, 2008;Pegg, Patterson, & Gariddo, 2012;Scott & McBoyle, 2007). ...
The study investigates a recent surge of cash literature by using a sample of hospitality firms to gain a new understanding of corporate cash holdings. Past literature states that there is a substantial variation of liquidity across industry groups. Existing literature predominantly refers to US-listed firms and focus on either hotels or restaurants and not the hospitality industry as a whole. Therefore, we provide a comparative study of cash holdings behaviour between hospitality and non-hospitality firms from an emerging market context. Using a sample of public listed hospitality firms from 2002 to 2013, dynamic panel regression techniques are used to study the relationships between firm characteristics and cash levels. Also, the non-parametric Wilcoxon-Mann-Whitney test was carried out to examine the time and sectoral differences in cash holdings. In addition, the panel regression techniques are used to investigate the relationships between firm characteristics and level of corporate cash holdings. The results reveal that firm characteristics do matter in hospitality firms. We find that firm size, capital expenditures, and liquid assets substitutes are negatively related to cash level. The results support trade-off theory and the pecking order theory. This study incrementally explains the cash holdings behaviour of hospitality firms in emerging market.
... Tang & Jang, 2007); (Jang, et al, 2008 PeÉZËY» (Nucci & et al, 2005); (Nunes & et al, 2007); (Coricelli & et al, 2012 (Fazzari & et al, 1988); (Carpner & Petersen, 2002); (Chen & Guariglia, 2013) Fazzari & Petersen, 1993); (Nucci & et al, 2005); (Ding & et al , 2013 Pe ...
... The trade-off theory posits that there is an optimal level of capital structure in which the firm value is maximized. At the optimal point, the marginal benefits of debt equal the marginal costs of debt and the firm performance is maximized (Tang and Jang, 2007;Jang et al., 2008). Compared with equity financing, debt is cheaper because it is tax deductible. ...
International Journal of Economics and Financial Issues
Performance is the outcome of all plans and decisions of a company. It shows the ways companies are governed. Consequently, determining the relative importance (RI) of factors influencing the performance is important. Therefore, in this study, seven independent variables were determined based on the literature. Then, the significant variables were chosen using the Pearson's correlation test. Finally, an artificial neural network was designed to investigate the RI of the determinants. In total, 1340 company-year data were collected from Tehran stock exchange from 2001 to 2010. The research results revealed that institutional ownership concentration is the most important factor which is followed by state ownership, and managerial stock ownership. Debt policy and firm size are ranked in lower position.
... Overall, it was shown that hotel companies have recourse to debt according to their financial needs, following a hierarchical order in the selection of sources of financing. At the same time, though, these companies aim to keep real debt level at anideal proportion, taking into account relative economic benefits (Özer and Yamak, 2000;UpnejaandDalbor, 2001;Dalbor and Upneja, 2004;Tang and Jang, 2007;Sharma, 2007;Jang et al., 2008;Karadeniz et al., 2009). ...
... Overall, the pecking order theory is more predictive of small firm behavior. SooCheong et al. (2008) find that hotel companies generally hold large cash accounts and suggest that debt is preferred to equity due to the collateral effect of property and equipment. Kim et al. (2013) examine the behavior of restaurant firms with different cash-holding levels, cash-poor and cash-rich. ...
This article investigates the circumstances surrounding large investments by firms in the hospitality sector in the United States. The authors identify 400 large-scale investment events for firms in the restaurant, hotel, and recreation industries. During these events, firms increase their size substantially through building or acquiring assets. The authors determine that a combination of market and firm-specific factors lead to such events. Firms are more likely to engage in large investments when they have experienced strong recent sales growth and when they have lower existing leverage. These investments are more likely when the market is less volatile and when general economic conditions indicate strong consumer demand. Finally, the authors show that firms are more likely to rely on a combination of cash flow and debt financing to complete such investments, though firms experiencing higher sales growth are prone to use more equity financing.
... Campello (2007) found that if debt is increased and firm's assets are more tangible then firm's performance will also increase compared to the rivals in the market. Jang, Tang and Chen (2008) examined that firm value increases if only debt is used for financing activities. According to Cheng, Liu and Chien (2010) if the leverage is at a moderate level, then capital structure will be positively related to firm performance. ...
An attempt was made to analyze the impact of capital structure on firm performance of 63 companies listed on Karachi Stock Exchange. Data comprised of 5 years, 2007 to 2011. Balance Sheet Analysis issued by State Bank of Pakistan was used for data collection. Fixed Effects Model was used as pooled regression model to find the relationship between firm performance (ROA, ROE, ROS) and capital expenditure (DTA, EQA, LDA). Results showed that there does exist a relationship but direction of the relationship was mixed. Capital structure showed positive impact on firm performance when retrun on assets (ROA) was used as dependent variable. When return on equity (ROE) was used as dependent variable then debt over assets ratio (DTA) showed positive impact but equity over assets ratio (EQA) and long term debts over assets ratio (LDA) revealed negative impact over dependent variable and when retrun on sales (ROS) was used as dependent variable then DTA and EQA showed negative link to ROS but LDA revealed positive impact over ROS. It was proved that capital structure has impact over firm performance so managers should adopt necessary carefulness while taking decisions regarding capital structure.
... In an attempt to measure the degree of correlation and integration between more than one dependent variable and independent variables simultaneously, the most important determinants of bank performance were bank's cost, deposits, and loans composition. Since then, studies have examined the interdependency of decisions related to balance sheet accounts in non-financial settings (Stowe et al., 1980;Jang and Ryu, 2006;Jang et al., 2008;Jang and Kim, 2009). Nonetheless, the literature on ALM in the financial industry is scarce and ALM in the developing sector of Islamic banking is still under-researched. ...
Structured Abstract
Purpose: Motivated by massive bank failures during the financial crisis and the remarkable
resilience of Islamic banks, this paper analyzes the interdependencies between asset/liability
portfolio choices of Islamic banks in emerging markets.
Design/Methodology/Approach: We collect data from the financial statements of Islamic
banks (IBs) in the Middle East and North Africa (MENA) region and Southeast Asia during
the period 2002–2012. Using Canonical Correlation Analysis, we investigate the degree of
interdependencies between the asset/liability accounts unique to IBs and how their ALM
models work at times of economic turmoil.
Findings: IBs tend to make decisions on sources of finance based on their asset portfolio
choices. The interdependencies are stronger for small banks. IBs direct more of their
investments to risk-mitigating instruments that share the risk with the borrower/client and are
based on the purchase and sale of real goods rather than financial instruments. Additionally,
banks tend to rely less on equity to finance their investments during economic boom and
increase their equity holdings during economic bust.
Practical Implications: This paper contributes to research on an under-researched, globally
growing finance sector. It extends research on ALM while providing novel evidence using
non-standardized asset/liability accounts unique to IBs.
Originality/Value: The analysis of unique accounts has not been discussed in prior studies,
which mainly used standardized account balances to compare Islamic and conventional
banks. Moreover, the resilience of IBs and whether their ALM models are superior at times
of turmoil has remained a black box. Our results are relevant to unravel this unanswered
question.
... According to the Trade-off theory, more profitable firms should use more debt in order to benefit from the interest tax deduction (Modigliani and Miller, 1963), thus suggesting a positive relationship between profitability and indebtedness because firms with a greater capability to create and maintain results have a greater bargaining power and thus should be more attractive when resorting to external financing (Harris and Raviv, 1991;Jang et al. 2008). ...
The main objective of this paper is to study the capital structure determinants of SMEs in the hospitality sector and how this can influence their level of indebtedness. Using panel data methodology and considering a sample of 43 Portuguese hotels, the authors study the capital structure determinants between 2004 and 2013. The study examines the indebtedness level in light of the two main theories – the Trade-off theory and the Pecking Order theory. The hospitality sector was chosen because of its importance in the Portuguese economy and because this particular sector has hardly been studied. In addition to total indebtedness, the authors extend the literature by analysing the differences between short-term and long-term indebtedness. The results obtained suggest that profitability, assets tangibility, firm dimension, total liquidity and risk are key factors affecting the capital structure of hospitality sector SMEs, while growth, other tax benefits and age were not deemed relevant. These results allow us to conclude that Trade-off and Pecking Order theories should not be considered in isolation to explain the capital structure of hospitality sector SMEs.
... Also, firms that raise finance at floating rates are better off than those that adopt fixed rate floated debt (Ernst & Young, 2010). Jang et al. (2008) investigated the shifts in financing behavior of hotel companies listed in the USA during three time periods -slump 1990-1992, expansion 1996-1998 and recovery 2002-2004. The author found that, out of 78.8 per cent of total long term assets, plant, property and equipment (PPE) contributed 61.2 per cent, and this was financed by 49 per cent of long term loan and 28.9 per cent shareholders' equity. ...
Purpose
The purpose of this paper is to provide a practitioners' perspective on financial challenges prevalent in the Indian hospitality industry. The paper also makes an attempt to give useful insights into possible solutions to the issues raised.
Design/methodology/approach
The study assimilates data from senior finance professionals from a spectrum of hotels in India. The study involves the collection of primary data through structured interviews.
Findings
The study highlights that some of the financial challenges faced by the Indian hospitality industry include high financing costs, multiplicity of taxes charged, licensing and legal issues, working capital issues and eroding margins. The study also gives some useful insights to the possible solutions to the challenges identified.
Research limitations/implications
This paper provides some very useful qualitative analysis of the contemporary challenges and their possible solutions prevalent in the Indian hospitality sector. The findings will be useful for hoteliers, policy makers and researchers to deliberate on the issues raised. However, it does not involve any quantitative analysis.
Originality/value
This study makes a sincere attempt to bring forth some real life issues, challenges and solutions which would be a good value addition to the existing literature.
... Hotels have high leverage because they are capital intensive, resulting in a huge need of external financing, which is usually collateralized by fixed assets (Dalbor & Upneja, 2004). For example, during the 2002-2004 period, hotel firms had a long-term debt ratio of 47% and a short-term debt ratio of 12% (Jang, Tang, & Chen, 2008), while the average ratio of the long-term debt to the total assets for non-financial firms in the U.S. is only 23%, and 7.4% for the short-term debt ratio in 1991 (Rajan & Zingales, 1995). With higher financial leverage, hotels naturally are burdened with higher debt service obligations and thus more exposure to interest rate risk, especially when a large portion of outstanding debt consists of floating-rate debt. ...
In the present study we investigate the effects of leverage and growth opportunities on the extent of hedging under financial distress. Contrary to the theories, the results indicate that hedging and leverage decisions are not endogenous. We also found that when the level of financial distress is low, the incremental tax benefits of debt and growth opportunities might not be significant enough to motivate hedging. When the level of financial distress is high, hotel reduce the overall extent of hedging as leverage and growth opportunities increase. Finally, hotel firms' high level of financial distress might contribute to the negative relationship between management ownership and hedging.
We examine the influence of climate policy uncertainty (CPU) on corporate cash holding decisions of U.S. tourism and hospitality firms. We find that CPU is negatively associated with corporate cash holdings for tourism and hospitality firms in the United States. A further analysis indicates that the impact of CPU on cash holdings lasts 2 years and disappears afterward. We also show that CPU is negatively associated with corporate cash holdings for hotel firms, but its impacts on airline, restaurant, and casino firms are insignificant. Results from cross-sectional analyses show that financial constraints and climate risk exposure moderate the relationship between CPU and corporate cash holdings. Our main findings are insensitive to additional robustness tests, including an instrumental variable test and subsample analyses. Our results have timely implications for academics, investors, and regulators.
This study empirically examines the impact of leverage and capital structure on firm value for the US hotel industry from 1991 to 2017. We find strong evidence that leverage positively relates to firm value for firms in the hotel industry. This relationship is most robust for hotel firms with low financial health, consistent with the theory that firms signal positive information through capital structure. We also find that the relationship between leverage and firm value was weakened during the financial crisis, particularly for firms close to financial distress. Our results suggest that hotel management, creditors, and investors should pay attention to the magnifying effect of leverage on firm performance and the impact of financial crises on the value of debt. This study's empirical results also support the idea that firms in the hotel industry signal to outside investors through debt.
İşletme değeri kavramının ortaya çıkması ve işletme değeri maksimizasyonunun nihai amaç olarak kabul edilmesinden sonra
sermaye yapısının işletme değerine olan etkileri birçok araştırmaya konu olmuş ve olmaya devam etmektedir. Turizm
sektöründe yaşanan gelişmeler ve sektörün yarattığı ekonomik katma değer neticesinde konaklama işletmelerinde; sermaye
yapısı kararlarını etkileyen değişkenlerin belirlenmesi sektördeki gelişimin sürdürülebilmesi açısından önemlidir. Bu
araştırmada, en yüksek turizm gelirine sahip ülkelerde faaliyette bulunan konaklama işletmelerinin sermaye yapıları
üzerinde etkili olan makroekonomik değişkenler ve sermaye yapılarının açıklanmasında sermaye yapısı teorilerinden
hangilerinin geçerli olduğunun belirlenmesi amaçlanmıştır. Bu kapsamda, konaklama işletmelerinin sermaye yapısını
etkileyen değişkenler 2011-2017 dönemlerini kapsayacak biçimde Genelleştirilmiş Momentler Metodu kullanılarak
belirlenmeye çalışılmıştır. Yapılan analizler sonucunda konaklama işletmelerinin sermaye yapısı üzerinde etkili olan
makroekonomik faktörlerin ülke bazında değişkenlik gösterdiği saptanmıştır. Ayrıca konaklama işletmelerinin
makroekonomik değişkenler bazında sermaye yapılarını oluştururken finansal hiyerarşi teorisi ve dengeleme teorisiyle
uyumlu yönde hareket ettikleri belirlenmiştir.
Abstract
After the emergence of the concept of firm value and the acceptance of firm value maximization as the ultimate goal, its
effects on capital structure and firm value have been subject to many studies and continue to be. The absence of a theory
that fully explains the variables affecting the capital structure decisions and separates them with certain lines is effective in
keeping the subject up to date. As a result of the developments in the tourism sector and the economic value added
created by the sector in accommodation companies; determining the variables that affect the capital structure decisions is
important in terms of sustaining the development in the sector. In this research, it is aimed to determine which of the
capital structure theories are valid in the explanation of the macroeconomic variables and capital structures that affect the
capital structures of the lodging companies operating in the countries with the highest tourism income. In this context, the
variables that affect the capital structure of the lodging companies are determined to cover the periods 2011-2017 using
The Generalized Method of Moments on the basis country individually. It has been determined that the macroeconomic factors affecting the capital structure of the lodging companies vary by the country. In addition, it has been determined that
accommodation businesses act in harmony with the pecking order theory and trade of while forming their capital
structures on the basis of macroeconomic variables.
This paper analyzes the relationship between leverage and the performance of a sample of Italian manufacturing companies. The data cover the period 2010-2014 and refer to 200 companies of different sizes. To analyze the relationship between leverage, we used the theoretical framework suggested by the literature. The results showed that the size and presence of tangible assets affect companies' financial leverage and performance. The other variables demonstrated less explanatory efficacy. The robustness checks highlighted the reliability of the results.
This paper investigates the effect of the board of directors on the capital structure of non-financial firms in an emerging economy. The analysis was performed using a cross-sectional study. The research used statistical software programs. The results showed that increasing the number of non-executive directors on the board has a significant and negative effect on leverage. Therefore, smaller boards have greater leverage. The type of industry used as a control variable has no impact on leverage.
This paper aims to analyze the financial leverage of manufacturing companies in the province of Lima, using the theoretical reference framework of the main theories suggested by the financial literature. Financial information was collected through a structured questionnaire. To assess leverage, we used a set of dependent, and independent variables developed from established literature. Our hypotheses were tested with the least-squares model (POLS). The results showed that the variables considered have a different weight in explaining the capital structure of Peruvian manufacturing companies. In particular, profitability and size were the most significant variables. The other variables do not appear to affect leverage.
Leasing emerges as an important practice that meets the needs of companies that do not want to spend their equity on investment goods or whose equity is not sufficient to acquire investment goods. At this point, investors prefer financial leasing and operational leasing methods to provide economic benefits and profits from the use of goods, not ownership. This study discusses the financial leasing and operational leasing practices that are frequently used for financing and assesses the use of these methods in the tourism and hospitality markets and the effects of the COVID-19 pandemic. In addition, the study also makes recommendations by making predictions about changes and innovations that may occur after the pandemic crisis.
Amaç – Bu çalışmanın amacı, Borsa İstanbul’da kayıtlı olan küçük ve orta ölçekli imalat sektörü
işletmelerinin sermaye yapısına etki eden işletmeye özgü ve makroekonomik değişkenlerin;
işletmelerin sermaye yapısı kararları ile ilişkisinin karşılaştırmalı olarak incelenmesidir. Böylece,
küçük ve orta ölçekli imalat sektörü işletmelerinin sermaye yapısı kararlarına etki eden faktörlerin
birbirlerinden farklı olup olmadıkları veya ne ölçüde farklı oldukları gösterilebilecektir.
Yöntem – 2009-2017 yılları arasında Borsa İstanbul’da faaliyette bulunan 134 imalat sektörü
işletmesi aktif büyüklüklerine göre gruplandırılmıştır. Gruplandırma sonucunda 110 işletme aktif
büyüklüğüne göre küçük ve orta büyüklükteki (KOBİ) işletme olarak sınıflandırılmıştır. Analizde
işletmelere ait çeyrek dönem verileri kullanılmıştır. Kısa vadeli kaldıraç, uzun vadeli kaldıraç ve
toplam kaldıraç oranları bağımlı değişken olarak kullanılırken, işletmeye özgü bağımsız
değişkenler; karlılık, işletme büyüklüğü, likidite, büyüme fırsatı ve varlık yapısı; makroekonomik
bağımsız değişkenler ise GSYİH büyüme oranı, faiz oranı ve döviz kuru oranı olarak ele alınmıştır.
Yöntem olarak kanonik korelasyon analizi tercih edilmiş, böylece işletmeye özgü değişkenler ile
makroekonomik değişkenlerin eş zamanlı olarak analizi mümkün olmuştur.
Bulgular – Analiz sonuçlarına göre; toplam kaldıraç oranı en fazla katkı sağlayan kaldıraç değişkeni
olurken, işletmeye özgü değişkenler arasında en fazla katkı sağlayan değişken likidite değişkeni
olmuş ve kaldıraç oranlarıyla arasında negatif ilişki tespit edilmiştir. Makroekonomik değişkenler
içerisinde döviz kuru oranı en fazla katkı sağlayan değişken olup kaldıraç oranlarıyla arasında
negatif ilişki tespit edilmiştir.
Tartışma – İşletmelerin sermaye yapılarını nasıl seçeceği ve makroekonomik faktörlerin karar verme
sürecini nasıl etkileyeceği finans literatürünün üzerinde hala çalışmaya devam ettiği konulardan
birisidir. İşletmelerin finansal karar verme sürecinde etkili olan sermaye yapısı belirleyicilerinin
incelendiği bu çalışmada, küçük ölçekli ve orta ölçekli olarak sınıflandırılan imalat işletmelerinin
hem finansman hiyerarşisi teorisine hem de dengeleme teorisine uygun hareket ettikleri
belirlenmiştir. İşletmelerin borçlanma davranışlarının genel olarak birbirine benzer olduğu ve
literatür incelendiğinde sermaye yapısı kararlarına etki eden faktörlere ilişkin araştırmalarda
kanonik korelasyon analizi kullanılan çalışmalara rastlanılmadığı aynı zamanda diğer analiz
yöntemleri kullanılarak yapılan çalışmalar ile benzer sonuçlar elde edildiği tespit edilmiştir
Purpose – The aim of this study is to investigate the firm specific and the macroeconomic factors
affecting the capital structure decisions of small and medium sized manufacturing firmswhich are
traded at Borsa İstanbul. It is a comparative analysis of the relationship between firms and capital
structure decisions. Thus, it can be shown whether the factors affecting the capital structure
decisions of small and medium sized manufacturing sector enterprises are different from each other
or to what extent they are different.
Design/methodology/approach – The period of 2009-2017, a sample of 134 manufacturing firms,
operating in Borsa Istanbul are grouped according to their asset sizes. As a result of the grouping,
110 firms are classified as small and medium sized (SME) enterprises according to their asset size.
Security and privacy issues are a major concern to users of social network sites (SNS). These issues range from unauthorized access to personal information to cyber bullying. Previous researchers have been exerting different perspectives including technical, psychological and law to study privacy and security issues. However, the issues of security and privacy seems to be ongoing. In view of the security threats and privacy issues of student using SNS, this study sets out to examine the security awareness, preparedness towards cyber-attacks and security behaviors among IT and Non-IT postgraduate students. As such, 400 postgraduate students were surveyed using a self-administered questionnaire. The findings reported in this study revealed that IT students have significantly high security awareness and behavior as compared to Non-IT students. However, there is no significant difference between the preparedness towards cyber-attacks of both IT and Non-IT students. Finally, this study demonstrates that there is a significant relationship between preparedness towards cyber-attacks and security behaviors. The theoretical and practical implications of this study highlight the importance of security awareness and understanding of technical-know how in preempting security attacks among SNS users.
This study investigates the existence of an optimal capital structure for small and medium enterprise (SME) hotels through the analysis of the relationship between financing decisions and financial performance in a large sample of Italian hotel SMEs. The results show that hotel SMEs face an optimal capital structure that allows them to maximize returns to investors, while instead having both too little and too much debt reduces their financial performance. This notwithstanding, we show that hotel SMEs are not particularly concerned with optimizing their capital structure, and their funding behavior is deeply connected with the availability of internally available funds, a typical pecking order behavior, and they result extremely slow in converging toward their optimal level of leverage so that they could improve their performance by adopting a more sophisticated financial strategy.
Since Myers (1984) and Myers and Majluf (1984) suggested the pecking order theory, it has frequently been examined by researchers. Recently Frank and Goyal (2003) have questioned its validity. Following De Jong et al.’s (2010) proposition about financing behaviors under financing deficit and surplus situations, this study examined restaurants to verify the validity of the pecking order theory and found that restaurants depend more on equity financing, which is in line with the pecking order puzzle. Specifically, restaurants with financing deficits rely more on equity financing than restaurants with financing surpluses. Further, this study confirmed that franchise funds alleviate financing deficits. Thus, franchise restaurants used less equity financing than non-franchise restaurants in cases of financing deficits. However, both franchise and non-franchise restaurants with financing surpluses showed similar financing behaviors and did not significantly rely on equity financing, which indicates that both types of firms follow the pecking order theory.
Numerous studies have used agency theory (Jensen and Meckling, 1976) and capital scarcity theory (Oxenfeldt and Kelly, 1969) to explain franchising motivations. Although both theories may in part account for why firms choose to franchise, past studies have not seriously considered the potential relationship between franchising and capital structures. Using Blinder–Oaxaca decomposition analysis, this study examined the impact of franchising on short- and long-term debt leverage. The final sample included 191 restaurant firms from 1980 to 2015. Sixty-five firms were non-franchise firms, while 126 firms engaged in the franchising business. The results of the Blinder–Oaxaca decomposition analysis showed that franchising has a significant effect on decreasing long-term debts and confirmed that franchising plays an important role as an additional source of long-term capital. Consequently, the capital scarcity theory is supported as one aspect of long-term debt leverage. However, franchise restaurant firms have larger short-term debt than non-franchise firms, although it is merely marginally significant. This contradicts capital scarcity theory but is in accordance with some past studies (e.g. Norton, 1988; 1995). This implies that franchisors constantly need short-term capital to support franchisees.
Purpose
The aim of this study was to extend the understanding of restaurant firms’ overall debt and equity financing practices by considering what drives equity financing. More importantly, this study attempted to identify whether or not an optimal financial leverage point exists in the relationship between debt financing and equity financing for restaurant firms.
Design/methodology/approach
This study used fixed-effects regression models with a sample of 1,549 unbalanced firm-year panel data to identify restaurant firms’ financial practices and the impacts of financial constraints.
Findings
First, restaurant firms tend to issue long-term debt in order to pay back existing debt. However, the amount of debt does not exactly match the debt’s maturity. Second, small restaurant firms’ net debt financing, as well as net equity financing, has an inverted-U shaped relationship with financial leverage. Lastly, the effect of financial leverage on external financing significantly differs between small and large restaurant firms.
Practical implications
Restaurant firms routinely use both debt and equity financing interchangeably to manage their financial constraints and target debt ratio. Further, firm size is an important indicator of financial constraints, while equity financing plays an important role in managing an optimal target debt ratio.
Originality/value
This study is unique in that it considers determinants of restaurant firms’ long-term debt financing as well as equity financing. This study also examines differences in long-term debt and equity financing practices between financially constrained and unconstrained firms.
In this book chapter, we introduce the readers to typical sources of hotel financing using a hypothetical case-study. First, we provide a commentary on various types of funding sources. We provide rationale for why a particular surplus unit specifies certain constraints to an (investment) manager. A discussion is offered on various factors that may lead to a certain mix of financing. We walk the readers through various steps of the optimization process. Finally, we provide a case study on optimizing the funding sources using the SOLVER function in MS Excel.
The aim of this study is to investigate the financing
decisions' of Hotel and Restaurant Sector by Central
Bank of the Republic of Turkey sector balance sheets.
In this context of view, the financial data of Hotel and
Restaurant sector between 1990 - 2009 years is
researched. Sector's asset and liability composition,
the source of financing with their maturity are
investigated on a yearly basis. The results of analysis
impose that the sector is highly depended to fixed
assets. While the liability structure shows that debt
and equity are on a balance. Besides more long term
debt are being used in comparison with short-term
debt. Furthermore, long-term sources are used to
finance the assets.
The investment behavior of lodging firms is not adequately explained by conventional investment models due to the lodging firms' practice of acquiring some properties while disposing of others. This practice makes it difficult to apply decision models based on marginal productivity and the costs of fixed assets to lodging firms. Using data on U.S. lodging firms between 2000 and 2008, this study provides an alternative explanation of hotel firms' simultaneous investment and disinvestment behavior. Taking the view that hotel properties are analogs to financial assets (given that a hotel investment has bond-like characteristics), the study applied the financial portfolio theory to develop a theoretical framework that would explain how lodging firms can understand their investment options as components of a portfolio of assets. Through empirical testing, the study also found significant investment-disinvestment interdependency for lodging firms, which supports the alternative theory to asset management. An important consideration in lodging companies' investment decisions is residual fees from franchise or management agreements that are attached to assets even after they are sold.
In this study, using panel data models, we analyze whether the capital structure decisions of SMEs in the hotel sector follow the predictions of Pecking Order and Trade-Off theories. The results suggest that these theories are not mutually exclusive in explaining the capital structure decisions of SME hotels. The results obtained indicate that these firms follow a hierarchical order in their selection of financing sources, corroborating the assumptions of theory. The results also show that SME hotels adjust the level of actual debt towards optimal debt ratio as well as size, asset tangibility, growth opportunities, non-debt tax shields, and risk influence debt. These results suggest that the financing behaviour of SME hotels is in agreement with the predictions of theory. Therefore, Pecking Order and Trade-Off theories contribute to explaining the financing behaviour of SMEs in the hotel sector.
This study jointly investigated the inter-relationships among capital structure, free cash flow, diversification and firm performance. Prior research has separately examined each individual relationship, but all four of these components are closely related and have complicated endogenous relationships. Thus, a joint examination is needed in order to better understand the inter-relationships among them. The results of this study showed that unrelated diversification discount is not caused by free cash flow but instead by diversification performance itself. Free cash flow increases both related and unrelated diversification entropies, which contradicts the hypothesis that diversification discount is caused by an over-investment of free cash flows. This study also found that debt leverage is an efficient way to reduce free cash flows and enhance firm performance. In particular, for firms with unrelated diversification, debt leverage directly alleviates the negative effects of unrelated diversification on firm performance. It also indirectly counterbalances the level of unrelated diversification via free cash flows. Further discussion and industry implications are also presented in the paper.
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.
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.
New Venture Creation: Entrepreneurship for the 21st Century, Canadian Edition, addresses the needs of upper-level entrepreneurship and new venture courses. Timmons provides strong, comprehensive theoretical coverage balanced with practical examples and cases, all designed to instruct students on how to formulate, plan for, finance, launch, manage, and eventually harvest a new venture. Timmons, Canadian Edition, is a rigorous, practical, and experiential text. The hands-on approach gets students thinking, planning, and ready to execute their own businesses. The text is practitioner-focused, features an especially rigorous section on financials, and focuses on high-growth, innovative ventures. Timmons covers the process of getting a new venture started, growing the venture, and successfully harvesting it. Through text, case studies, and hands-on exercises, this "how-to" text guides students in discovering the concepts of entrepreneurship and the competencies, skills, tools, and experience that will equip them to recognize entrepreneurial opportunities. Acknowledging that there is no substitute for actually starting a company, the Timmons authors believe it is possible to expose students to many of the vital issues and immerse them in key learning experiences that result in successful new venture creation.
The relationship between a firm's capital structure, its cost of capital, and its stock value is an important financial and investment issue today. Using a cross- sectional regression analysis, the leverage behavior of 33 firms in 2 industry groups-the hotel industry and the manufacturing sector-was examined. Findings showed that all leverage determinants studied, excepting firm size, are significant in explaining leverage variations in debt behavior. In addition, although more industry- specific variables are needed, leverage behavior in hotel firms can be analyzed using traditionally theorized capital structure determinants. As such, the capital structure in the hotel industry is better understood, and some important distinctions between short-term and long-term debt behavior in hotel and manufacturing firms are revealed.
BECAUSE A CANONICAL CORRELATION IS THE CORRELATION BETWEEN 2 LINEAR COMPOSITES, IT PRESENTS SOME INTERPRETIVE PROBLEMS. NO MEASURE OF THE REDUNDANCY IN 1 SET OF VARIABLES, GIVEN ANOTHER SET OF VARIABLES, HAS BEEN AVAILABLE. A NONSYMMETRIC INDEX OF REDUNDANCY IS PROPOSED WHICH REPRESENTS THE AMOUNT OF PREDICTED VARIANCE IN A SET OF VARIABLES.
Canonical correlation analysis is used to investigate the cross-balance sheet relationships for a sample of Mexican firms. The results are compared to a similar analysis of large and small United States firms. Like US companies, Mexican firms tend to match the maturities of short- and long-term assets with their liability/equity accounts. Unlike their US counterparts, however, Mexican firms appear to employ short-term debt, primarily accounts payable, to manage risk. Also, in the 1982 through 1988 period, the use of accounts payable to finance current assets declines, as does the importance of accounts receivable. It is suggested that these changes were the result of the hyperinflation in Mexico in the 1980s and, to a lesser degree, the Stabilization Plan implemented in the early part of the decade.SommaireUne analyse corrélative canonique sert de base à l’étude des bilans d’un échantillon de firmes mexicaines. les résultats obtenus sont comparés à une analyse semblable qui porte sur de grandes et petites entreprises américaines. à l’instar de leurs homologues américains, les établissements mexicains ont tendance à faire correspondre les échéances des actifs à court et à long terme à celles de leurs comptes de passif et d’avoir. Cependant, contrairement aux firmes américaines, les firmes mexicaines semblent utiliser l’endettement à court terme, principalement les comptes fournisseurs, pour gérer leurs risques. Par ailleurs, au cours de la période située entre 1982 et 1988, le financement de l’actif à court terme par les comptes fournisseurs a été moins fréquent, et l’importance des comptes débiteurs a diminué. Ces changements semblent être le résultat de l’inflation galopante que le Mexique a connue au cours des années 1980 et, à un moindre degré, du plan de stabilisation mis en place au début de la décennie.
This study uses canonical correlation analysis to examine the interrelationships among balance sheet accounts for 3,152 Spanish firms. The sample was segmented and results compared by size of firm. All firms demonstrated evidence of hedging relationships, maturity matching of current accounts, and risk management through the concurrent use of cash and long-term debt. This study adds to the growing body of literature on the financing strategies of firms in different countries. Some constraints associated with the development of SME financial strategies, such as difficulty in raising capital, are common among firms in all countries. Other constraints, such as the differences in the development of the capital markets and cultural expectations, may be unique to particular countries. The results have implications that can enable owners to better manage the acquisition and allocation of capital. As firms grow and mature, finance-related skills must correspondingly also improve.
With the growing interest in the globalisation of the economy, it is useful to undertake comparative studies of strategies pursued by business firms in the developed and developing countries. This paper is an attempt in this direction. It examines cross-balance sheet relationships for a sample of small- to medium- sized Taiwanese firms and compares the results with similar studies of small and large companies in the United States. The similarities and contrasts pointed out in the paper may provide insights into how firms adopt their financial strategies in different economies and under different market constraints.
Debt is beneficial, but only up to a point, beyond which the disadvantages outweigh the benefits. So, how much is too much?
Using canonical correlation analysis, this study examined the interdependencies in investing and financing decisions of restaurant firms. The results indicated that the similar four cross-balance sheet interdependencies exist in the restaurant industry as identified by previous studies for different industries and companies in various countries: (1) maturity matching structure of assets and liabilities, (2) use of long-term assets as collateral for long-term debt, (3) use of accounts payable to finance operational assets (e.g., inventories and other current assets), and (4) concurrent use of cash and stockholders’ equity to manage risk. Additionally, this study discovered the unique financing features of the restaurant industry: (1) restaurant firms did not relate account receivables to short-term liabilities, and (2) they financed their operational assets with stockholders’ equity in addition to account payable. The findings are expected to contribute to the understanding of restaurant financing behavior as related to assets structures. This study also demonstrated the usefulness of canonical correlation analysis in extracting information related to financial management strategy.
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.
The FASB has recently issued a research report and an invitation to comment on the need for more disaggregated reporting by business enterprises with respect to geographic segments. The purpose of this study was to provide evidence related to the informativeness of more detailed financial reporting by geographic segment. The specific empirical objective of the study was to determine if balance sheet account balances (account amounts) of subsidiaries of U.S. multinationals are systematically related across countries. Canonical correlation analysis was used to identify and interpret such systematic relationships. The analysis confirms that balance sheet account balances of these subsidiaries are systematically related across countries. These relationships suggest that: (1) foreign earnings are used to finance investments in other foreign countries; (2) long-term foreign assets are financed with short-term and long-term debt, rather than with equity; and (3) working capital of a foreign affiliate may be financed with capital stock (equity capital provided by the parent). Overall, the results support the view that balance sheets are not managed with a purely global perspective.
This study investigates U.S. airline managements' perception of deregulation's impact upon the industry's financial risk by analyzing the airlines' risk management behavior. Specifically, canonical correlation analysis is utilized to ascertain key asset-liability/equity interrelationships and to identify changes in airline risk management as indicated by changes in financial structure. A control sample of nonregulated firms in various service industries is used to separate the effects of general economic conditions from those of deregulation. The results indicate that the airline industry adjusted its financial structure to reduce the industry's exposure to risk as the industry became deregulated. The industry decreased its financial leverage through greater use of equity vis-à-vis debt to finance its long-term assets while simultaneously increasing its liquidity. Definitive conclusions concerning the industry's perception of financial risk after deregulation had been in place a few years are precluded by two external events which occurred in 1978—the requirement that leases be capitalized on the balance sheet and the rapid fuel price increases spurred by the Iran-Iraq war. However, the results clearly show the industry perceived greater financial risk during the early years of de facto CAB deregulation.
Recent empirical evidence has shown that internal capital markets within multinational corporations are used to reduce overall financing costs by optimizing the mix of internal and external debt of affiliates in different countries. We show that this cost saving use of internal capital markets is not limited to multinationals, but that domestic business groups actively optimize the internal/external debt mix across their subsidiaries as well. We use both subsidiary and group level financial statement data to model the bank and internal debt concentration of Belgian private business group affiliates and show that a pecking order of internal debt over bank debt at subsidiary level leads to a substantially lower bank debt concentration for group affiliates as compared to stand-alone companies. However, as the group's overall debt level mounts, groups increasingly locate bank borrowing in subsidiaries with low costs of external financing (i.e. large subsidiaries with important collateralable assets) to limit moral hazard and dissipative costs.
Recent empirical evidence has shown that internal capital markets within multinational corporations are used to reduce overall financing costs by optimizing the mix of internal and external debt of affiliates in different countries. We show that this cost saving use of internal capital markets is not limited to multinationals, but that domestic business groups actively optimize the internal/external debt mix across their subsidiaries as well. We use both subsidiary and group level financial statement data to model the bank and internal debt concentration of Belgian private business group affiliates and show that a pecking order of internal debt over bank debt at subsidiary level leads to a substantially lower bank debt concentration for group affiliates as compared to stand-alone companies. However, as the group's overall debt level mounts, groups increasingly locate bank borrowing in subsidiaries with low costs of external financing (i.e. large subsidiaries with important collateralable assets) to limit moral hazard and dissipative costs.
This paper tests traditional capital structure models against the alternative of a peck- ing order model of corporate financing. The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater time- series explanatory power than a static tradeo⁄ model, which predicts that each firm adjusts gradually toward an optimal debt ratio. We show that our tests have the power to reject the pecking order against alternative tradeo⁄ hypotheses. The statistical power of some usual tests of the tradeo⁄ model is virtually nil. ( 1999 Elsevier Science S.A. All rights reserved. JEL classification: G32
This paper analyzes the explanatory power of some recent theories of optimal capital structure. The study extends empirical work on capital-structure theory in three ways. First, it examines a broader set of capital-structure theories, many of which have not previously been analyzed empirically. Second, since the theories have different empirical implications in regards to different types of debt instruments, the authors analyze measures of short-term, long-term, and convertible debt rather than an aggregate measure of total debt. And third, the study uses a factor-analytic technique that mitigates the measurement problems encountered when working with proxy variables. Copyright 1988 by American Finance Association.
This paper considers a firm that must issue common stock to raise cash to undertake a valuable investment opportunity. Management is assumed to know more about the firm's value than potential investors. Investors interpret the firm's actions rationally. An equilibrium model of the issue-invest decision is developed under these assumptions. The model shows that firms may refuse to issue stock, and therefore may pass up valuable investment opportunities. The model suggests explanations for several aspects of corporate financing behavior, including the tendency to rely on internal sources of funds, and to prefer debt to equity if external financing is required. Extensions and applications of the model are discussed.
Recent empirical evidence has shown that internal capital markets within multinational corporations are used to reduce overall financing costs by optimizing the mix of internal and external debt of affiliates in different countries. We show that this cost saving use of internal capital markets is not limited to multinationals, but that domestic business groups actively optimize the internal/external debt mix across their subsidiaries as well. We use both subsidiary and group level financial statement data to model the bank and internal debt concentration of Belgian private business group affiliates and show that a pecking order of internal debt over bank debt at subsidiary level leads to a substantially lower bank debt concentration for group affiliates as compared to stand-alone companies. However, as the group's overall debt level mounts, groups increasingly locate bank borrowing in subsidiaries with low costs of external financing (i.e. large subsidiaries with important collateralable assets) to limit moral hazard and dissipative costs.
Airline balance sheet strategies in the post 9/11 environment: an application of CCA and canonical scores
- C A Scheraga
- J A Haslem
Scheraga, C. A., Haslem, J.A., 2005. Airline balance sheet strategies in the
post 9/11 environment: an application of CCA and canonical scores.
Retrieved from: /http://www.trforum.org/forumS.
A model of venture capitalist investment patterns
- Tyejbee
Tyejbee, T., Bruno, A., 1983. A model of venture capitalist investment
patterns. Management Science 30, 1051-1066.
Fundamentals of Corporate Finance
- S A Ross
- R W Westerfield
- B D Jordan
Ross, S.A., Westerfield, R.W., Jordan, B.D., 2003. Fundamentals of
Corporate Finance, sixth ed. McGraw-Hill/Irwin, New York, NY.
A comparison of small business and large corporations: interrelationships among position statements
- Carter
Carter, R., Van Auken, H., 1990. A comparison of small business and
large corporations: interrelationships among position statements.
Journal of Business and Entrepreneurship 2, 73-80.
The Theory of Interest
- I Fisher
Fisher, I., 1930. The Theory of Interest. Macmillan Co, New York.
Relationships between the two sides of the balance sheet: a CCA
- Stowe
A CCA of commercial bank asset/liability structures
- Simonson
Cross-balance sheet interdependencies of restaurant firms: a CCA
- Jang