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Financing Decisions and Performance of Italian SMEs in the Hotel Industry
Abstract
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.
... The two capital structure theories therefore have contradictory predictions about the relationship between profitability and debt. Several studies (e.g., Chittenden et al., 1996;Kim, 1997;Karadeniz et al., 2009;Botta, 2019) identify a negative relationship between profitability and short-term debt. We also hypothesize a negative relationship between profitability and short-term debt and the same for profitability and long-term debt. ...
... This means that the more collateral a firm can provide, the higher the ratio of long-term debt to total capital. Consistent with these theoretical predictions, previous research has identified a positive relationship between asset structure and long-term debt (e.g., Tang and Jang, 2007;Pacheco and Tavares, 2017;Botta, 2019). As we define asset structure using the share of fixed assets in total assets then, ceteris paribus, the higher the share of fixed assets, the lower the share of short-term liquidity. ...
... They suggest profitability, asset tangibility, firm size, total debt, and solvency are important factors affecting firm financial structure. Botta (2019) finds that SMEs in the hotel sector prefer to finance according to the predictions of the POF theory and are less concerned with optimizing capital structure. Lastly, Kizildag and Ozdemir (2017) investigate the impact of both firm-specific and macro factors on firm debt in the US tourism and hospitality industry during the period 1990-2015. ...
Volatile seasonal demand and geographic clustering of firms are two important factors affecting the capital structure of hospitality firms. In this paper, we investigate the capital structure determinants of hospitality firms regarding the effects of seasonality and geographic clustering. A fixed-effects panel data model was estimated using data on all hospitality firms in Norway from 2008 to 2018. Our empirical findings reveal that the seasonality created by foreign tourists increases the share of long-term debt in the capital structure. Further, the clustering of hospitality firms in a region enhances firm reliance on short-term debt, in that firm liquidity is negatively associated with the degree of clustering, suggesting that severe competition drains cash for which short-term debt serves as a substitute. These findings have important implications for financial management of firms in the hospitality industry as the degrees of seasonality and clustering significantly affect their asset financing and liquidity management behavior.
... The objective of this paper is to study how firm-specific factors affect the financial performance of newly created small and micro-sized firms located in the Algarve, in the south of Portugal. This study intends to achieve this aim by combining in a single model the potential determinants of financial performance that have been considered in previous research in an isolated matter, such as debts (Botta, 2019), slack resources (Tan & Peng, 2003), sales growth rate (Jang & Park, 2011), asset tangibility (Nunes & Serrasqueiro, 2017) and the firm's size (Sardo et al., 2018). To the best of our knowledge, the approach to this topic focusing only on small and micro-sized firms has still not been explored, which is another contribution of this study. ...
... However, these restrictive assumptions do not hold in real economies. Other succeeding studies have shown that capital structure may affect a firm's performance (e.g., Botta, 2019). ...
The main objective of this paper is to study how firm-specific factors affect the financial performance of tourism-related young small and micro-sized firms located in Algarve, Portugal, that started their activity during the last years of the debt crisis of Europe. The sample included 106 Portuguese small and micro-sized firms in the hospitality sector, established between 2012-2014, which remain active in 2019 and financial data from 2015 to 2018 was analysed. Descriptive statistics, group statistics, correlations, and regression model analyses were applied. The dependent variable representing profitability was the return on assets ratio (ROA). The independent variables were short-term, long-term and total debts, slack resources, sales growth, tangibility and size of the firm. A negative relationship between performance and long-term and short-term debts was found, confirming the theory that the most profitable firms tend to borrow less as they do not need external capital. Also, a negative relationship between ROA and tangibility was found, which means that as the level of tangible assets lessens, more intangible assets there are. These results give some hints to help tourism-related small and micro-sized firms located in Algarve take innovation, flexibility, and digitalisation strategies, particularly important during a pandemic crisis.
... The hospitality industry is exposed to non-diversified risks due to its operations and due to such high risks, the firms in the hospitality industry face severe financial and operating risks. High volatility for hospitality firms also affects revenues (Andrew & Schmidgall, 1993;Botta 2018;Lee & Xiao 2011). The hospitality firms are found to be highly leveraged (Singal, 2015), so it becomes vital to study the determinants of capital structure among hospitality firms. ...
... Pacheco and Tavares (2017) studied Portuguese firms and found ROE, firm's liquidity, volatility and asset structure to be significant factors for determining a firm's capital structure, while the growth rate of firms, tax benefits and age of firms were found to be insignificant to capital structure. Botta (2018) investigated an optimal capital structure for hotels and analyzed the relationship between financing decisions and the financial performance of Italian hotels. The researcher established a concave quadratic relationship between the standard deviation of debt ratio and return on invested capital. ...
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.
... MSMEs as credit recipients have full power to decide whether to finance their business whether all of them use bank credit, some use bank credit, or without using bank credit (Wong et al., 2018). When MSMEs decide all sources of funding come from bank credit or part of the funding source comes from bank credit, it shows the behavior of using bank credit by MSMEs (Botta, 2018;Rao et al., 2019). This behavior proves that MSMEs can make good use of banking access. ...
The purpose of this study is to prove the role of financial access in improving the behavior of using bank credit with the intention of using bank credit as a mediator. A sample of 150 respondents used a purposive sampling technique. The data analysis technique used is SEM-PLS. The results of the financial access have a significant and positive effect intention of using bank credit. The intention of using bank credit also has a significant and positive impact on behavior of using bank credit. However, access to finance does not directly or indirectly affect the behavior of using bank credit. This research is useful for the government and banks in managing strategies to increase the use of bank credit for MSMEs.
... The financial cost is uncontrollable because it is affected by decisions related to capital structure and the interest rate of raising capital. Botta (2018) investigated the existence of an optimal capital structure for small and medium-sized enterprises (SMEs) in the hotel industry by examining the relationship between financing decisions and financial performance in Italy. The study concluded that SME hotels deviate from optimal leverage due to the availability of internal funds. ...
The study aimed to explore the critical factors impacting the sustainability and growth of the hotel business in the Southeast Asian market. The study covered observations from the second quarter of 2010 to the first quarter of 2022 quarterly reports of 28 listed hotels out of 85 listed in the Southeast Asia markets. By adopting the Dupont equation’s overall business activities measurement, the study tested industrial growth, instability, and market performance in terms relevant to the operating, investing, and financing activities of hotel companies. It was found that fundamental business activities do explain the growth of the hotel industry, with leverage most significantly impacting industrial growth. Industrial instability and market measurement present weak relevance and irrelevance to fundamental accounting measurements of hotel business activities, respectively.
... Hal ini mengakibatkan industri atau perusahaan dituntut untuk dapat meningkatkan kinerjanya. Menurut Botta (2019), kinerja merupakan aspek utama yang perlu diperhatikan, karena perusahaan dengan kinerja terbaik akan menjadi incaran para investor di pasar modal. Kinerja perusahaan dapat dipantau dari saham dan juga rasio keuangan perusahaan. ...
Analysis of the selection of stocks to invest can be seen by measuring stock performance based on stock returns and risks that will be borne by investors. Beside of stock performance, investors also pay attention to the company's financial performance by calculating the company's financial ratios. This study aims to determine the stock performance and financial ratios of the JAPFA Comfeed Indonesia (Tbk) company. The analytical method in this study uses secondary data in the form of stock price data and company financial reports. The results of the study show that returns for the August 2022 period produce better returns. Meanwhile, September 2022 experienced a drastic decrease from the previous year so that it experienced a loss. The average risk value for August 2022 is 1.87% and September 2022 is 1.40%. Macro analysis can be seen that the company still imports raw materials by 30%, so the company is more consistent in managing finances, controlling cash wisely, and focusing on increasing efficiency and profitability. The results of the analysis in this study indicate that JAPFA's financial ratios can be categorized as quite good. Abstrak Analisis pemilihan saham untuk berinvestasi dapat dilihat dengan melakukan pengukuran kinerja saham berdasarkan return saham dan risiko yang akan ditanggung oleh investor. Selain kinerja saham, investor juga memperhatikan kinerja keuangan perusahaan dengan menghitung rasio keuangan perusahaan. Tujuan penelitian ini adalah mengetahui bagaimana kinerja saham dan rasio keuangan perusahaan pada JAPFA Comfeed Indonesia (Tbk). Penelitian ini menggunakan data sekunder yang berasal dari data harga saham dan laporan keuangan perusahaan. Hasil penelitian menunjukkan return untuk periode bulan Agustus tahun 2022 menghasilkan return yang lebih baik. Sedangkan, bulan September 2022 mengalami penurunan drastis dari tahun sebelumnya sehingga mengalami loss. Nilai rata-rata risiko Agustus 2022 1,87% dan September 2022 1,40%. Analisis makro dapat dilihat perusahaan masih impor bahan baku sebesar 30%, maka perusahaan lebih konsisten dalam mengelola keuangan, mengendalikan kas dengan bijaksana, serta fokus dalam peningkatan efisiensi dan profitabilitas. Hasil analisis dalam penelitian ini menunjukkan bahwa rasio keuangan Perusahaan JAPFA dapat dikategorikan cukup baik.
... In addition, company performance is also related to productivity, efficiency and effectiveness of company management in increasing company profitability (Tan & Wang, 2010). Companies with good performance are also targets for investors in the capital market (Botta, 2019). Firm financial performance proxy commonly used by previous researchers is Return on Assets which is a comparison of net income with total company assets (Muchtar et al., 2018;Perrini et al., 2008;Ramaswami et al., 2009;Zeitun & Tian, 2014). ...
The purpose of this study is to examine the effect of the capital adequacy ratio, non-performing financing, bank size and financing to deposit ratio on financial performance of Islamic banks in Indonesia. The data used in this study are capital adequacy ratios, non-performing financing, bank size, financing to deposit ratio and financial performance of Islamic banks in Indonesia for 2013-2020. The data is accessed through the website www.ojk.go.id Data analysis method in this study is panel data regression analysis method. The results of the study find that capital adequacy ratio has positive and significant effect on financial performance, while non-performing financing has negative and significant effect on financial performance. Bank size and financing to deposit ratio have no significant effect on financial performance.
... Apesar das características diferenciadoras do setor hoteleiro e da sua importância económica, a investigação aplicada sobre os determinantes da estrutura de capital neste setor é reduzida. Neste âmbito são de referir estudos sobre a realidade estado-unidense (Tang & Jang, 2007;Dalbor & Upneja, 2004;Upneja & Dalbor, 2001), espanhola (Devesa & Esteban, 2011), portuguesa (Serrasqueiro & Nunes, 2014;Matias & Baptista, 1998), italiana (Botta, 2019) e da Turquia (Karadeniz et al., 2009). ...
... Selain itu, kinerja perusahaan juga memiliki kaitan dengan profuktivitas, efisiensi dan efektivitas dari manajemen perusahaan dalam meningkatkan profitabilitas perusahaan (Tan & Wang, 2010). Perusahaan dengan kinerja yang baik juga menjadi incaran bagi para investor di pasar modal (Botta, 2019). Uraian tersebut menunjukkan bahwa kinerja perusahaan menjadi aspek yang penting untuk diperhatikan. ...
This study aims to analyze effect of investment, risk based capital and audit commitee on firm performance in Insurance Companies on Indonesian Stock Exchange during 2010-2020. The number of samples in this study are 9 Insurance Companies which are listed on the IDX and have completed data obtained by porpousive sampling method. The type of data used is secondary data in the form of panel data obtained from the company's Annual Report. The data analysis method used is Panel Data Regression. The results of this study find that investment has a positive and significant effect on firm performance, while risk based capital and audit commite have no significant effect firm performance.
... Não obstante a importância económica do sector hoteleiro, a investigação aplicada sobre os determinantes da estrutura de capital deste sector é escassa. A este nível são de mencionar estudos sobre a realidade estado-unidense (Tang & Jang, 2007;Dalbor & Upneja, 2004;Upneja & Dalbor, 2001;Sheel, 1994), espanhola (Devesa & Esteban, 2011), portuguesa (Serrasqueiro & Nunes, 2014;Matias & Baptista, 1998), italiana (Botta, 2019) e da Turquia (Karadeniz et al., 2009). Estes estudos investigam fundamentalmente variáveis financeiras como determinantes da estrutura de capital, dada a dificuldade na recolha de informação específica da indústria hoteleira. ...
This paper investigates the factors that affect the capital structure decisions of Portuguese and Spanish hotel companies, using information extracted from the Amadeus database, for the period 2007-2013. The capital structure has been intensively investigated, but studies on the hotel industry are still scarce, particularly in Portugal and Spain. Furthermore, fractional regression models are adopted, an econometric methodology that is more adequate than the traditional multiple linear regression models.
The results suggest that the financial behavior of hotel companies is more adjusted to the foundations of the pecking order theory, although they do not exclude the trade-off theory. The result of the interaction of the variables profitability and free cash-flow reinforces the explanatory power of the pecking order among Portuguese hotel companies, suggesting that the use of debt is lower for Portuguese companies that combine profitability with excess funds. In terms of public policies, the results suggest the relevance of action proposals aimed at improving the financing conditions of the hotel sector, namely, small and less profitable companies could benefit from more advantageous credit conditions, and hotel companies would benefit from the implementation of measures aimed at demonstrating the quality of the financial information made available, generating greater confidence with creditor entities.
... Two earlier studies with regard to SMEs owners in financing decisions represent the picture of previous studies on this topic, which divided into 2 (two) approaches. First, SMEs financing decisions based on an indicator of financial performance approaches (Cassar & Holmes, 2003;García-Teruel & Martínez-Solano, 2010;Iturralde et al., 2010;Ferrando et al., 2017;Botta, 2019;Maes et al., 2019;Nizaeva & Coskun, 2019). Second, the decision of financing decisions based on the firms' characteristics (attribute) and the behaviour of the owners (Dong & Men, 2014;Rao & Kumar, 2018;Galli et al., 2019;Baker et al., 2020). ...
This research seeks the effect of behavioural and non-behavioural factors of SME’s owners and their business characteristic on the financing decisions. Moreover, this research categorized SMEs owners based on their behavioural aspects on establishing a behavioural mapping in SMEs industry. The sample of this research is the informal SMEs owners in Surakarta, Central Java, Indonesia. In investigating the relationship of the independent variable on financial decision making, this research employed the hierarchical linear multiple regression model (HLMR) and multiple logistic regression (LR). Furthermore, this research employed cluster analysis for building a behavioural mapping in SMEs industry. This study discovered a significant effect of behavioural aspects of SME’s owners on the financing decisions, which is, instead of having significant enforcement on the financing decisions, the non-behavioural aspects were more likely impacted on the SMEs owners’ investment decisions. The finding shows that there are three significant groups of SMEs owners in the Surakarta region. The result of this research gives key insights, mainly to the involved stakeholder to keep the sustainability of the SMEs industry.
... Частина наукових досліджень присвячена питанням аналізу впливу факторів на прибутковість та фінансовий стан підприємств готельного бізнесу (Arbelo, et al., 2017;Karanovic, et al., 2018;He et al., 2019, Botta, 2019, Mun et al., 2019Casado-Díaz & Sellers-Rubio, 2020;Kalaitan, 2020) та інші. Так, Karanovic et al. (2018) провели аналітичну оцінку відносних фінансових показників готелів Хорватії. ...
The hotel industry is one of the most important components of tourism. Its capacity depends on the ability to generate revenue from the full range of tourism services, and, consequently, the success of tourism development at both national and regional levels. Therefore, in this study we would like to assess (1) the hotel sector positioning in the Lviv region by share in the tourist accommodation establishments among the regions of Ukraine; (2) state indicators of Ukraian hotel industry in comparison with similar indicators of the EU member states; (3) the Lviv region position in terms of share in the Ukraine hotel sector among other regions; (4) prospects for the rural hotels development. In the research process we used the systematic review method of scientific publications, Ukrainian legislation, as well as information and analytical materials of international organizations in the tourism field. The hotel sector positioning of Lviv region among other Ukraine regions it is determined on the basis of the studied regions share in the total volume of the country as a whole. The analysis showed that hotels and similar accommodation are the main part of the tourist accommodation establishments potential in the Lviv region. During the study period (2017–2019) the hotel business of Lviv region has a consistently high position among other regions (2nd place). Ranking 2nd in Europe in terms of area, Ukraine ranks 10th in the number of hotels and similar accommodation, and 22nd in the number of beds – among the EU countries, which indicates the insufficient level of the national hotel sector development. The number of hotels in Ukraine is growing slowly. The main reasons for this are: the unstable economic and political situation, the high cost of loans to finance the construction of new hotels, long-term return on investment in hotel real estate and others. The experience of foreign countries with a high level of the hotel sector development shows that state intervention is used to achieve such results. Therefore, in order to develop the hotel sector in Ukraine, it is necessary to develop a program to support it. In particular, in our opinion, fiscal incentives should be introduced (for example, a reduction in the VAT rate for the hotel sector). To increase the tourist flow can be applied the practice of VAT refunds for tourists, reducing VAT rates on passenger transport.
This research aims to emphasize the impact of indebtedness on the financial performance of tourism companies. To capture this impact in the different phases of economic cycles, the study focused on the period 2004–2019. The econometric analysis is using panel data models, and it has been done for distinct periods of time. The sample was represented by 42 tourism companies. Based on the results of the full-period analysis, performed on the model of return on assets (ROA) and also on the model of return on equity (ROE), it was shown that indebtedness has a negative effect on financial performance. Statistical analysis also provides information on the impact of other micro- and macroeconomic variables. Thus, it was shown that the size of the company and the inflation rate have a negative impact, while the GDP growth rate and the degree of liquidity have a positive influence, when the performance is assessed by ROA. Breaking down the period analyzed into sub-periods depending on the manifestation of the crisis, we have shown that the variation of ROA—under the impact of the variables included in the analysis—is more significant than the variation of ROE. During the pre-crisis (2004–2008) and crisis (2009–2015) periods, none of the variables analyzed influenced ROE. The results of the study are valuable both scientifically and practically because they provide clues to managers on how to adapt performance and indebtedness strategies to the national macroeconomic context.
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.
This study theoretically examines the role of the ethical rating agencies. First, in an infinitely repeated game framework, it shows that hotels with low environmental, social, and governance risk would prefer to signal their worthiness to isolate them from risky ones. Next, by employing the Bayesian approach, this study shows that a socially responsible investment (SRI) would advise a hotel to obtain an ethical rating when the expected value of sample information turns positive. This analysis could guide future empirical investigation and policy frameworks about the ethical screening.
To form optimum firm capital structure strategies to face unanticipated economic events, firm managers should understand the stability of a firm’s capital structure. The aim of this research was to study whether the debt ratio is stationary in listed firms on the Dow Jones Industrial Average (DJIA). Two vital capital structure concepts regarding pecking order and trade-off theory are fairly contradictory. Using opposing theoretical contexts, the Sequential Panel Selection Method apparently categorizes which and how many series are stationary processes in the panel. This method was used to test the mean reverting properties of the 25 companies listed on Dow Jones Industrial Average between 2001 and 2017 in this study, which is expected to fill the current gap in the literature. The overall results show that stationary debt ratios exist in 10 of the 25 studied firms, supporting the trade-off theory. Moreover, the 10 firms utilizing trade-off theory are affected by firm size, profitability, growth opportunity, and dividend payout ratio. These results provide vital information for firms to certify strategies to optimize capital structure.
In recognition of the significance of external business environments for small to medium-sized enterprises (SMEs), this study examines the relationship between macroenvironments and financing decisions of SMEs in the restaurant industry. With a focus on formal and informal credits, the study is grounded in agency theory, which explains how information asymmetry between SMEs and lenders might influence SMEs' financing decisions. Multinomial logistic regressions were used to analyze the data from the Global Entrepreneurship Monitor and the World Bank. The results indicated that the financial infrastructure and tax regulation can significantly increase the odds of choosing formal credits and decrease the odds of choosing informal credits. This study contributes to the literature by assessing the role of information asymmetry and agency theory on restaurant SMEs’ financing decisions. The study also has implications for industry practitioners and policymakers for the financial sustainability and success of SMEs.
We examine the effects of the global financial crisis of 2008 and the European debt crisis of 2011 on the relationship between capital structure, investments, and performance for Eastern European companies. While the existing literature documents how firms’ investments are sensitive to the availability of internal funds and to debt holdings, we further investigate whether this investment sensitivity also translates in different levels of performance, and document that capital structure indeed has both a direct and an indirect effect, mediated by the capital expenditure channel. We show that firms with higher financial flexibility experience higher investments and returns on capital. Over-levered firms instead suffer from a debt overhang condition, forcing them to curb investments, and consequently experiencing lower performance. Overall, we provide evidence on the importance of capital structure and financial flexibility on investments and performance, showing the real consequences of the debt overhang condition on firm value creation. Firms should therefore aim at maintaining adequate financial flexibility in order to be able to pursue future profitable investment opportunities, and avoid the under-investment problem arising from a debt overhang situation.
Debt-type compensation (inside debt) exacerbates the divergence in risk preferences between the CEO and shareholders and in turn affects capital structure decisions. An excessively risk-averse CEO uses debt that falls short of the shareholders’ desired level, prefers to reduce debt quickly when the firm is over-levered but is reluctant to increase debt when the firm is under-levered. We find that higher CEO inside debt ratio, i.e. inside debt as a percentage of total incentive compensation, is associated with lower firm leverage and faster (slower) leverage adjustments toward the shareholders’ desired level for over-levered (under-levered) firms. The CEO inside debt ratio most conducive to capital structure rebalancing is around 10 percent of the firm's market debt ratio. This article is protected by copyright. All rights reserved
This study addressed the relationship between the innovativeness of hotels and their profitability. The authors propose that innovativeness and the visibility of the benefits to customers from innovative activities both serve as endogenous variables. Competitive market advantage, sales growth, and capacity utilization serve as mediators. Both key informants and financial statements provided data for a sample of 298 hotels. The results show that the relationship between innovativeness and profitability is positive and fully mediated.
This study was conducted to suggest strategic orientations that can analyze which types of corporate culture and strategic orientation contribute to enhanced financial performance, based on the theory that, to acquire a competitive edge in the fierce competitive environment and maximize performance, the combination of corporate internal competitiveness and an appropriate action plan is crucial. The study shows that corporate culture does directly affect financial performance. However, for this group of Korean hotels, not all cultures performed equally. The transaction-oriented Market Culture did not promote financial performance, as compared to the family-oriented Clan culture or the innovative Adhocracy culture. The tradition-bound Hierarchical culture actually cost hotels in terms of financial performance. Certain strategic orientations moderated and improved financial results for some of the cultures, but not all. The opportunity-seeking approach of a leading orientation drove favorable financial results for the Clan and Adhocracy cultures but did not help the Market or Hierarchy cultures. Other strategic orientations also drove positive financial results, including future analytic and defensive. On the other hand, the discounting-oriented aggressive orientation returned negative financial results to all hotels in this sample.
This study explores the under-researched relationship between corporate governance and firm performance in tourism companies. We employ instrumental variable modelling using 2SLS for publicly listed firms in five countries in the Middle East. Board independence is found to be positively related to firm performance and stock performance, suggesting that having independent directors among board members will improve overall firm performance. Board size shows opposing results: large boards enhance firm profitability; however, small boards exhibit more efficient stock performance. Finally, we support the tourism-led-growth hypothesis in our selected sample. These findings have empirical implications for policy makers, governments and academics.
Many authors relate a firm's performance to legal and political features and the regulatory environment in which it operates. This article compares firms' capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds. We find that legal and financial traditions significantly correlate with firm adjustment speeds. More narrowly, institutional features also relate to adjustment speeds, consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm's leverage. Such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade-off theory of capital structure choice.
This article investigates, in further detail, a previously researched positive relationship between long-term debt and growth opportunities in the U.S. lodging industry. In addition to utilizing variables related to the three major theories of capital structure, the authors use alternative growth opportunity measures in an attempt to confirm previous findings in the hospitality literature. The results indicate that certain growth opportunity proxies do a better job of explaining the long-term debt choice for U.S. lodging firms. This research could be used to reexamine the long-term debt decision and growth opportunities in other sectors of the hospitality industry.
The aim of this paper is to detect the variations in the risk of a hotel chain's performance derived from opening a new lodging establishment. Investments requiring huge fixed costs have a direct effect on the operating leverage of a firm; consequently, the analysis of the changes in the operating leverage derived from strategic decisions is a crucial aspect since it allows to shed some light on the degree of sensitivity of the firm to variations in demand. In order to operationalise the assessment of the risk, the volatility of returns is used. For this purpose, it is employed, for the first time in the hotel industry, a methodology based on GARCH-family models to detect such changes.
Purpose
How do we measure the success of a hotel business? What factors determine performances? This paper seeks to explore the responses which researchers and practitioners have given to these questions in the last 20 years.
Design/methodology/approach
The paper is based on the analysis of 152 contributions and uses the balanced scorecard as a model to rationalize the main streams of research.
Findings
The analysis of literature shows the gradually assumed importance of the balanced scorecard as a satisfactory performance measurement system. The findings related to the determinants of results are instead highly complex and far‐reaching. The determining factors are generally looked for within the enterprise. Four main functional research fields have been identified (strategy, production, marketing and organization) and for each one main research goals, findings and open questions are defined. The horizontal axis of the balanced scorecard (customer perspective, strategy and process perspective) is the area of greatest research (over half of the papers). This evidence appears in line with the structural features of the hotel business and with the importance held, respectively, by customer relations and the protection of the efficiency of management processes.
Research limitations/implications
The paper shows the main weaknesses and strengths in previous research design in terms of: dependent and independent variables, sample and data sources. At theoretical level, the current research is strongly based on six countries (69 percent of the sample). Given the profound diversity of national contexts, researchers focusing on internal determinants should use external control variables more extensively. Furthermore, some recent subfields appear very fragmented especially in terms of independent variables used.
Originality/value
The paper identifies research streams and gaps in the field of hotel performance.
Purpose – The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies. Design/methodology/approach – A model based on the trade-off and pecking order theories is specified and implications of both theories are empirically tested. The model is estimated using a dynamic panel data approach for five ISE companies for the period of 1994-2006.
Findings – The findings suggest that effective tax rates, tangibility of assets, and return on assets are related negatively to the debt ratio, while free cash flow, non-debt tax shields, growth opportunities, net commercial credit position, and firm size do not appear to be related to the debt ratio. Although the findings partially support the pecking order theory, neither the trade-off nor the pecking order theory exactly seem to explain the capital structure of Turkish lodging companies.
Research limitations/implications – The data used in this paper are limited to five companies traded in the ISE, since the data on other companies are not available. A more detailed analysis would use data for other companies in the industry.
Practical implications – The findings of the study clearly demonstrate the importance of capital structure decisions for financial sources.
Originality/value – Although the capital structure theory is extensively examined in the finance literature, there are fewer studies covering the tourism industry, particularly Turkey. The paper establishes the determinants of the capital structure of Turkish lodging companies. The research findings should help managers to make optimal capital structure decisions.
In closely-held corporations, the owners of a significant amount of shares sometimes try to avert an impending bankruptcy by informally extending a loan, in the hope of financing a successful rescue attempt. For creditors, the continued operations of the company may result in a dissipation of even more liquidation value due to perpetuated and increased risk. For various reasons, courts and legislators are sometimes inclined to subordinate such loans in bankruptcy, or to require their treatment as equity. This article gives a brief overview of the legal basis of subordination in Germany, Austria, Italy, Spain, and the United States, and provides references to the laws of a number of other countries. It also explores the incentive effects of subordination, which are partly beneficial and partly detrimental, and discusses possible implications for legal reform, including the recent German legislative proposal.
We study the impact of firm and industry characteristics on small firms’ capital structure, employing a proprietary database
containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. The firm characteristics
suggest that the capital structure decision is consistent with the pecking-order theory: Dutch SMEs use profits to reduce
their debt level, and growing firms increase their debt position since they need more funds. We further document that profits
reduce in particular short-term debt, whereas growth increases long-term debt. We also find that inter- and intra-industry
effects are important in explaining small firms’ capital structure. Industries exhibit different average debt levels, which
is in line with the trade-off theory. Furthermore, there is substantial intra-industry heterogeneity, showing that the degree
of industry competition, the degree of agency conflicts, and the heterogeneity in employed technology are also important drivers
of capital structure.
KeywordsCapital structure–Panel data–Pecking-order theory–Trade-off theory–SME–Industry effects
The principal aim of this paper is to test how firm characteristics affect Small and Medium Enterprise (SME) capital structure.
We carry out an empirical analysis of panel data of 6482 non-financial Spanish SMEs during the five years period 1994–1998,
modelling the leverage ratio as a function of firm specific attributes hypothesized by capital structure theory. Our results
suggest that non-debt tax shields and profitability are both negatively related to SME leverage, while size, growth options
and asset structure influence positively SME capital structure; they also confirm a maturity matching behaviour in this firm
group.
The study reported here examines the financing choices of small and medium-sized firms, i.e., those most vulnerable to information
and incentive problems, through the lens of the business life cycle. We argue that the controversy in the empirical literature
regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees
of information opacity, and, consequently, firms' characteristics and needs at specific stages of their life cycles. The results
show that, in a bank-oriented country, firms tend to adopt specific financing strategies and a different hierarchy of financial
decision-making as they progress through the phases of their business life cycle. Contrary to conventional wisdom, debt is
shown to be fundamental to business activities in the early stages, representing the first choice. By contrast, in the maturity
stage, firms re-balance their capital structure, gradually substituting debt for internal capital, and for firms that have
consolidated their business, the pecking-order theory shows a high degree of application. This financial life-cycle pattern
seems to be homogeneous for different industries and consistent over time.
KeywordsCapital structure–Financial growth cycle–Financing decisions–Small and medium-sized firms–Source of finance
Attention to the asset value of intellectual property (IP) has traditionally concentrated on high‐value patent sales and licenses. This narrow focus neglects nonpatent assets held by a broader set of economic agents, such as trademarks, and overlooks the evolving ways owners are employing and monetizing their intangible assets. To help remedy this deficiency, the Office of Chief Economist of the United States Patent and Trademark Office (USPTO) is releasing a series of datasets in formats convenient for researchers. This article describes the USPTO Trademark Assignment Dataset, a database of over 785,000 transactions recorded during 1952–2013 affecting almost 4.2 million trademark registrations and applications. We provide a comprehensive description and present key trends, showing that among registrations issued during 1978–2013, more than 31% were affected by some transaction during their lives, 21% were transferred to different parties, and 12% were involved in at least one security interest agreement. Examining transaction rates by registration cohort, we find evidence that registered U.S. trademarks may be more likely to be traded than are U.S. patents. Other trends and findings are discussed. Despite limitations, these data open new avenues for research, particularly with respect to trademark collateralization and the market for brands.
Due to the fast growing hotel industry in Taiwan, recent hospitality studies has paid attention to how various factors affect the Taiwanese hotel performance and offered interesting and valuable findings. To expand the financial literature of the Taiwanese hotel industry and the hospitality literature as a whole, this article is the first hospitality study to investigate how board size affects firm performance of publicly traded hotels in Taiwan. Panel regression test results reveal an interesting finding. Specifically, there is an inverted U-shaped relationship between board size and hotel performance in terms of return on assets, return on equity, and Tobin’s Q with an optimal value of board size equal to 10. This indicates that while board size up to 10 has a positive impact on hotel performance (supporting the resource dependence theory), board size can deteriorate hotel performance when it is larger than 10 (supporting the agency theory).
The recent global financial crisis has triggered questions in the scientific area of capital structure dynamic determination regarding how “quickly” companies tend to adjust their capital structure to their long-term targets, in different macroeconomic states. We broaden the scope of the debate by focusing on SMEs and by discussing the relative importance of firm-specific and macroeconomic variables, when macroeconomic conditions change. Based on a partial adjustment model, we find that short-term and long-term debt ratios follow different patterns regarding their adjustment speeds; the adjustment speed for long-term debt slows down during the crisis, while the respective of the short-term debt is not affected. We also find clear differentiations of the effects and the contribution of the firm-specific and the macroeconomic variables between short-term debt and long-term debt ratios, when macroeconomic states change. We thus conclude that the nature and maturity of borrowing affect the persistence and endurance of the relationship between determinants and borrowing, across different macroeconomic states.
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.
Debt-type compensation (i.e., inside debt) exacerbates the divergence in risk preference between the CEO and shareholders that in turn affects the firm’s capital structure decisions. An excessively risk-averse CEO uses debt that falls short of the shareholders’ desired level, and is eager to lower the debt ratio when the firm is over-levered but reluctant to enhance the debt ratio when the firm is under-levered. We find that higher CEO inside debt ratio is associated with lower firm debt ratio and faster (slower) leverage adjustments toward the shareholders’ desired level for over-levered (under-levered) firms. The CEO inside debt ratio most conducive to optimal capital structure dynamics is around 10 percent of the firm’s market debt ratio.
The asset value of brands is increasingly used to raise debt financing for a wide range of financial transactions. A key tool for this purpose is securitization. This is a structured financial process that involves the repackaging of cash-flow-producing assets into securities, which are then sold to investors. The securitization of intangible assets such as brands has evolved into an established corporate financing tool used to facilitate M&A, stock buy-backs, and risk transference to investors. As companies recognized that intangibles assets constituted a main portion of their corporate wealth their desire to use them like their tangible assets for financing increased. Chapter 2 established that about two-thirds of business value can be attributed to intangible assets. The total asset value of global intellectual property is estimated to be between US$4 trillion and US$7 trillion. In 2008, intellectual property (IP) licensing revenue worldwide exceeded US$500 billion (compared with an estimated US$18 billion for 1990). For example, IBM alone receives between US$ 1.5 billion and US$2 billion in annual licensing revenue. In addition, due to new worldwide accounting standards on the treatment of intangible assets their visibility has increased significantly.1
Using financial data derived from 27 hotel companies operating in Tunisia, the paper reports an analysis of hotel profitability. Using Data Envelopment Analysis (DEA) and the Return On Assets (ROA) analysis managerial efficiency is shown to be important when holding geographical and operating contracts as constants. Nonetheless these two aspects have important implications for hotel profitability. Hotel size, level of indebtedness, exposure to crisis events and levels of managers' education are also influential. The implications for management tenure and optimal age of a hotel are discussed.
This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market-to-book assets ratio (-), tangibility (+), profits (-), log of assets (+), and expected inflation (+). In addition, we find that dividend-paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market-to-book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade-off theory of capital structure.
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.
Value-creating assets are recognised as critical in today's tourism management field. However, empirical research to date has not yet developed a useful conceptual framework for managing and marketing such assets. This paper presents service-dominant logic (S-D Logic) as a framework for advancing our understanding of intangible assets within the hotel industry. The research used S-D Logic to analyse intellectual capital (IC) disclosures of 20 publicly-listed European and US hotels. Results showed hotels acknowledge IC assets; in particular, the value embedded in their brands. However, the hotel companies' disclosures on generic items of Guest and Employees indicate they are overlooking the capacity for value-creation from such IC. This research, which makes a unique contribution by applying S-D Logic to examine hotel IC disclosures, recommends developing more sophisticated constructs for effective management of hotels' intangible assets. Finally, the S-D Logic framework has potential application in other areas of tourism management.
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 paper analyzes the impact of patent bibliographic indicators and patent characteristics on the economic value of patents put on sale in an auction, considering different typologies of sellers and buyers. A unique dataset covering all patent auctions held until the end of 2008 by Ocean Tomo is used. We employ two measures of patent value drawn from the auction process: the offer price (ex-ante value set by the seller) and the closing price (the market-value determined by the buyers) of patent lots. We find a positive correlation between forward citations and the economic value of patents (in terms of both the lot offer price and the lot closing price), while backward citations have a positive and significant impact only on the lot offer price. The number of claims is positively related to the lot closing price and the effect is significant only for the fraction of buyers that are non-practicing entities. The degree of technological congruence of the patents included in a lot turns out to be positively associated with the probability that the lot is sold and has a positive effect on both the lot offer price and the lot closing price. We also find a significant impact of the extent of the residual life of patents on the lot closing price. The effect is driven by the sub-sample of non-practicing entities as buyers. Finally, the extension of patent protection to other jurisdictions, as captured by the size of the patent family, is positively associated with both the lot offer price and the lot closing price.
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.
Do taxes affect corporate debt policy? This paper tests whether the incremental use of debt is positively related to simulated firm-specific marginal tax rates that account for net operating losses, investment tax credits, and the alternative minimum tax. The simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code, tax regime shifts, business cycle effects, and the progressive nature of the statutory tax schedule. Using annual data from more than 10,000 firms for the years 1980–1992, I provide evidence which indicates that high-tax-rate firms issue more debt than their low-tax-rate counterparts.
This paper is the keynote address from the Eastern Finance Association's 2012 meeting in Boston. I assert that, despite a substantial amount of work and much progress in the capital structure field, traditional models do a remarkably poor job of explaining the dynamics of observed capital structures. New approaches that focus on the firm's intertemporal access to capital appear to represent the most promising avenues for yielding fresh insights.
The purpose of this paper is to further investigate a previously researched positive relationship between the long-term debt ratio and growth opportunities in the U.S. lodging industry. Research by Smith and Watts (1992) and Barclay and Smith (1993) finds that firms with more growth opportunities will use less debt, favoring internal financing sources. In the hospitality sector, Dalbor and Upneja (2001) confirmed this relationship for the restaurant industry.
However, as discussed by Gaver and Gaver (1993), future discretionary investments are not homogeneous. In fact, Wald (1999) finds a positive relationship between growth opportunities and the use of long-term debt for firms in the United Kingdom, France, Japan, and Germany. Moreover, Upneja and Dalbor (2001) find a similar relationship within the U.S. lodging industry. Accordingly, we attempt to address two major questions.
For one, is the positive relationship between growth opportunities and long-term debt really true? Did Upneja and Dalbor (2001) make an error in measuring the growth opportunities variable? In this paper, we measure the presence of growth opportunities in a few different ways, perform some sensitivity tests, and hope to confirm that in the lodging sector firms with significant growth opportunities use more long-term debt.
After confirming this relationship, we further hypothesize on the potential causes for this relationship. In other words, we attempt to discover why hotels borrow more in the presence of growth opportunities. This research could be used to reexamine the measurement of growth opportunities in the restaurant industry or assess the relationship between long-term debt and growth opportunities in the casino industry.
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.
Debt is beneficial, but only up to a point, beyond which the disadvantages outweigh the benefits. So, how much is too much?
Abstract The traditional view is that interest deductibility encourages,firms to use debt financing; however, some argue that the personal tax disadvantage to interest offsets the corporate tax advantage. This paper investigates the degree,to which,personal taxes affect corporate financing decisions. In cross-sectional regressions that control for personal taxes, debt usage is positively correlated with tax rates in each year 1980‐1994, with significant coefficients in almost every year. A specification that adjusts tax benefits for the personal tax penalty statistically dominates,a specification that does,not. The positive (negative) effect of corporate (personal) taxes on debt usage is distinctly identified. © 1999 Elsevier Science S.A. All rights reserved. Keywords: Debt; Corporate taxes; Personal taxes; Capital structure; Taxes JEL classification : G32; H20
Purpose – The article seeks to evaluate the capital structure of leading hotel chains of India to examine the role of financing decision in the overall performance of companies. It aims to analyze the debt-equity structure of these hotels, try to discover the industry benchmark and scrutinize how capital structure plays a momentous role in the company's overall growth. Design/methodology/approach – The paper is based on financial data collected on leading hotel chains in India. The consolidated financial results of the hotels have been considered for selecting these hotel companies. Findings – From the financial perspective, capital structure is one of the most important determinants of a company's sustainable growth. Leverage seems to be working only for a few companies, whilst affecting others negatively. Firms that have been moderately geared have been able to generate a good return on equity. Practical implications – The paper would be of specific use for top and middle level management of the selected hotel chains to reassess their capital structure for enhanced financial performance. For the hospitality industry in general, it would divulge best financial practices in terms of debt-equity mix and would assist in fixing on better financing decisions. Originality/value – The findings of the research are pertinent for the industry, as no explicit study in this area has been conducted in the Indian context. More so, because it focuses on the high turnover segment of the industry which captures the major market share in the business, it would beg the question – “Does being big always mean being better?”
Purpose
This study sets out to examine the potential curvilinear relationship between capital intensity and firm value for the US hospitality industry, specifically including publicly traded US hotels and restaurants, during the period 1990‐2008.
Design/methodology/approach
This study performs a pooled regression analysis to examine the proposed relationship. The sampled companies are from the period 1990‐2008, consisting of 281 and 1,406 observations for the hotel and restaurant industries, respectively. The study additionally performs the analysis for the 1990s and the 2000s separately for a comparison purpose.
Findings
The findings support the U‐shaped relationship between capital intensity and firm performance during the 2000s for both hotels and restaurants, while no relationship exists during the 1990s.
Research limitations/implications
While the results may not be generalizable to private or non‐US hotels and restaurants, the findings should provide hotel and restaurant executives and managers with valuable information for developing their strategies with regard to the capital intensity level.
Originality/value
Based on the two perspectives regarding capital intensity's impact on a firm (i.e. positive and negative), a possible proposal suggests that the relationship between capital intensity and a firm's value may not be linear, but possibly curvilinear. Considering the importance of capital intensity in the hospitality industry, examinations of the issue would be beneficial for the hospitality industry.
There are few empirical studies on the economics of quality, and case studies and anecdotes dominate current research. This paper proposes that quality requires resources (input) and that quality has positive effects on economic performance (output). The study is based on quality ratings from 400,000 customers and detailed accounting information from more than 500 hotels. It demonstrates both that quality has positive effects on the hotels' economic performance and that superior quality requires economic resources.
Using a sample of secured syndicated loans, I explore the use of intangible assets as loan collateral and whether this credit practice was an innovation or a negative mutation in the corporate loan market. While intangible assets were not traditionally considered as eligible collateral, I find that twenty-one percent of U.S.-originated secured syndicated loans during 1996-2005 have been collateralized by intangibles, with intangible asset collateralization significantly increasing over this time period. I hypothesize and find that intangible redeployability and borrower reputation are positively related to the probability of using intangibles as loan collateral. I further hypothesize and find that collateralizing loans by intangibles significantly increases loan pricing and credit supply to firms. Finally, loans secured by intangibles perform no worse than other secured loans. Overall, I find evidence consistent with the fact that intangible asset collateralization was a credit market innovation that partially alleviated financing frictions.
Recent research has focused on the estimates of the speed of adjustment to target leverage as the indicators of the importance
of dynamic trade-off behavior. We show that the observed corporate financing behavior and the resulting dynamics of corporate
debt ratios are such that the speed of adjustment is not an economically meaningful measure of the importance of target debt
ratios. We conclude that partial adjustment regressions that rely on the existence of a well-defined target debt ratio are
ill-suited for quantifying the importance of dynamic trade-off behavior vis-a-vis alternative theories.
We estimate that the average value of a dollar invested in the U.S. corporate sector is $1.18. When we delete utilities and current assets, where opportunities for value added seem limited, the estimate jumps to $1.68. We use cross-section regressions to study how value is related to dividends and debt. The regressions can potentially identify tax effects, but they cannot disentangle other factors, including bankruptcy costs, agency costs, and asymmetric information. Simple tax stories say value is negatively related to dividends and positively related to debt, but we find the opposite. We infer that dividends and debt convey information about profitability that obscures any tax effects.
We empirically examine whether firms engage in a dynamic rebalancing of their capital structures while allowing for costly adjustment. We begin by showing that the presence of adjustment costs has significant implications for corporate financial policy and the interpretation of previous empirical results. After confirming that financing behavior is consistent with the presence of adjustment costs, we find that firms actively rebalance their leverage to stay within an optimal range. Our evidence suggests that the persistent effect of shocks on leverage observed in previous studies is more likely due to adjustment costs than indifference toward capital structure.
This article analyses the indebtedness of the companies belonging to the Spanish hotel industry. The internationalization process of Spanish hotel companies requires a new approach to their financial strategies. The form of expansion chosen in this process has an impact on the pace and volume of the funds needed for it. Other items are incorporated to observe different behaviour among hotel companies in relation with their indebtedness process. Among analysed factors, we can observe the importance of solvency, liquidity, and asset structure. The hotel industry's means to explain individual indebtedness is also relevant, demonstrating the fact that firms usually follow the sector's benchmark when determining the level of indebtedness. Studies such those of Grinblatt and Titman (2003) or Frank and Goyal (2009) confirm this same hypothesis.
A model explaining gross margins in the hotel and catering sector is developed. A cost-mark-up model for the retail sector is used as a starting point. Although we have to reject the hypothesis of mark-up pricing in the hotel and catering sector, the model proves a useful instrument to discriminate between such influences as sales composition, costs and their various components, scale and demand conditions on price setting. Our empirical evidence stems from the Dutch hotel and catering sector (1977 through 1981).
This paper examines the extent of firm level over-investment of free cash flow. Using an accounting-based framework to measure over-investment and free cash flow, I find evidence that, consistent with agency cost explanations, over-investment is concentrated in firms with the highest levels of free cash flow. Further tests examine whether firms’ governance structures are associated with over-investment of free cash flow. The evidence suggests that certain governance structures, such as the presence of activist shareholders, appear to mitigate over-investment.