Journal of Hospitality Financial Management: Volume 14, Issue 1
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Is the hospitality industry more likely to reprice stock options?
Denizci, Basak
Hospitality companies are known to be sensitive to the economy and movements in the market. When overall performance of the company is poor because of a market wide fall, hospitality managers should not be panelized for the decrease in the stock price. In such cases, it is acceptable to reprice the stock option to realign the incentives and to minimize the agency problem. This paper examines whether repricing of hospitality firms are more likely to reprice options after a stock price decrease that is accompanied by a market wide fall. Although the overall results are consistent with prior literature, I did not find enough evidence to support the hypothesis.
Institutional investor preference for lodging stocks
Oak, Seonghee; Dalbor, Michael C.
Although previous studies showed evidence of increasing institutional investors in the lodging industry (Corgel & DeRoos 1994, 2003; Leung & Lee 2005; Ciochett et al. 2002), no empirical study has reported the determinant of institution’s preference for lodging stocks. Since institutions act as agents for other investors, their investment patterns may be different from individual investors. In the case of litigation, the court accepts an institution’s prudent investment based on the characteristics of assets in isolation. Thus, institutions will prefer lodging stocks with high liquidity, low book-to-market ratios, low long-term debt ratios and high short-term debt.
Payment Type Offers and the Free Cash Flow Hypothesis
in Hospitality Acquisitions
Oak, Seonghee; Andrew, William
The purpose of study is to understand whether free cash flow is a determinant of the payment type offered by acquiring firms in hospitality acquisitions. According to the pecking order theory, investments are financed using internal funds first, new issues of debt second, and new issues of equity last in order to use the cheapest financing source possible. This is consistent with using free cash flow first in the financing of acquisitions. To test this hypothesis in the context of acquisition payment type offers, a measure of free cash flow was formulated and regressed against the type of payment offer used by hospitality acquirers. Other motivators of cash financing were also tested in the model. Small firms tend to have large cash holdings and often limited access to the capital markets. Thus we tested the relationship between the acquirer’s use of cash financing and size of acquirer. In addition, hospitality firms with strong growth opportunities hold significant cash balances to provide the flexibility to pursue positive NPV investment. Thus we included a measure of the acquirer’s growth opportunities as well. The results of the model indicated that larger hospitality firms and hospitality firms with low growth opportunities tend to use cash financing in their acquisitions.
The effectiveness of a brand call-center in revenue recovery
Mount, Daniel J.; Xiao, Qu
As organizations gradually recognize that enhanced customer satisfaction leads to better customer retention and profitability, the economic value of customers has been increasingly studied in various industries and individual companies in the past decade (e.g., Goodman, Ward, & Yanovsky, 1998; Reinartz & Kumar, 2000; Zeithaml, 2000). There has also been a significant increase in research on service recovery (Brown, Cowles & Tuten, 1996). However, very little research has aimed at the economic value of customers retained by effective service recovery in general and none, specifically, in the hotel industry. This paper presents a methodology to measure revenue recovery and the results of a six-year study on the effectiveness of a hotel call-center in recovering revenue for the hotel brand. The results show that the call-center has been effective in recovering revenue in that the recovery has been significant and is greater than the administrative costs of the call-center operation. The findings of this study suggest that revenue recovery could be a reliable measure for hotel brands to asses the economic value of their call centers.
Changing Times? Going from Public to Private:
Evidence from the US Restaurant Industry
Madanoglu, Melih; Karadag, Islam; Kwansa, Francis A.
In recent years there has been a dissent among executives of publicly-traded restaurant companies because of regulations imposed by the Sarbanes-Oxley Act of 2002. Executives believe that capital markets seem to undervalue restaurant firms. Mergerstat reports on ‘going-private transactions’ have risen steadily. The motivation of this paper is to report the effect of “going private” announcements on the shareholders’ wealth of the target restaurant firms. A total of 19 publicly traded restaurant firms which made “going private announcement” in the 1995-2004 period were included in this study. Event study analysis was used to determine whether there is an "abnormal" stock price effect associated with “going private” announcements within the restaurant industry. Event study guidelines suggested by MacKinlay (1997) were used. Research findings indicate that on the day of the announcement (t,0) shareholders of restaurant firms that were to be taken private enjoyed a highly positive abnormal return of 16.80%. Overall, the restaurant portfolio average abnormal return (22.06%) was higher than the figures reported in the previous studies of Lehn and Poulsen (1989) and Aharony and Barniv (2004). Results al so showed that the bid premium offered to target firms by their private acquirers remained steady.