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Explanations for the Predominant Use of Cash Financing in Hospitality Acquisitions

Abstract
Seventy-five percent of hospitality acquisitions were cash-financed from 1980 to 2000. In other industries this figure has been closer to 43%. Since the choice of cash versus stock financing can have a significant effect on a hospitality acquire‘s capital structure, the purpose of this study was to examine possible explanations for the high level of cash financing used in hospitality acquisitions. The results indicate that in both the hotel and restaurant industries, the use of cash payments in acquisi-tions is positively related to the acquiring firm’s debt ratio. Firm size is also positively related to the use of cash payments but only in the restaurant industry. Free cash flow and internal growth opportunities do not appear to be significant determinants of the use of cash payments in acquisitions in the hospitality industry.
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