Effects of Capital Intensity on Firm Performance: U.S. Restaurant Industry

Among several industry characteristics, capital intensity plays an important explanatory role for the restaurant industry. A restaurant needs physical buildings, equipment, fixtures, and furniture all ready at the launch of a business; these require considerable capital expenditures. Considering capital intensity as a significant restaurant industry characteristic, educators and practitioners who focus on this industry are strongly encouraged to investigate implications and effects of capital intensity in food service operations. The purpose of this study is to examine the effect of capital intensity on a firm’s value performance in the U.S. restaurant industry. The investigation period spans from 2000 to 2008. Findings suggest that capital intensity has a negative effect on U.S. restaurant firms’ value performance

A Critical Review of the Implied Cost of Equity: A New Way to Estimate the Expected Return

For the last three decades, the Capital Asset Pricing Model (CAPM) has been a dominant model to calculate expected return. In early 1990% Fama and French (1992) developed the Fama and French Three Factor model by adding two additional factors to the CAPM. However even with these present models, it has been found that estimates of the expected return are not accurate (Elton, 1999; Fama &French, 1997). Botosan (1997) introduced a new approach to estimate the expected return. This approach employs an equity valuation model to calculate the internal rate of return (IRR) which is often called, \u27implied cost of equity capital as a proxy of the expected return. This approach has been gaining in popularity among researchers. A critical review of the literature will help inform hospitality researchers regarding the issue and encourage them to implement the new approach into their own studies

RISK-SHARING AS A LONG-TERM MOTIVATION TO FRANCHISE: ROLE OF FRANCHISING EXPERIENCE

This study aimed to examine a long-term motivation for franchising by considering the influence of experience franchisors gain through conducting the franchising strategy. The study mainly investigates the moderating effect of franchising experience on the relationship between three main motivations for franchising (derived from agency theory, resource scarcity theory, and risk-sharing theory) and firms’ degree of franchising in the restaurant context. Dynamic panel data model was employed and the findings suggest that not only do restaurant companies’ franchising experience positively affect firms’ degree of franchising, but also that those experiences positively moderate the relationship between risk sharing motivation and the degree of franchising. The findings lead to theoretical and practical implications and suggestions for future research

Does Wall Street Truly Understand the Lodging Valuation?

Lodging stock undervaluation has been a longstanding issue in the hotel industry. Many market experts and industry educators and managers have participated in, or at least been exposed to, discussions and/or arguments over this issue. In summary, the proponent of lodging stock undervaluation contributes the occurrence to Wall Street’s lack of comprehension of the lodging business. The opponent dismisses this claim by stating the unlikelihood of Wall Street having such extensive knowledge on all industries except this particular industry. As to which view is correct is an empirical question and therefore, it would be a safe assumption that empirical studies have been conducted investigating the issue when considering the importance of the issue. Therefore, it is the main purpose of this study to investigate whether or not lodging stock is in fact undervalued. We used a sophisticated equity valuation method to examine the undervaluation issue by comparing lodging firms to firms in the rest of the industries. To empirically accomplish the main goal of the study, an equity valuation model, specifically the residual income (RI) model, was employed. By utilizing the RI model with historical financial data, estimated equity values were computed and compared to actual market values on both the lodging firms and non-lodging firms. We then compared the difference between these two final figures to identify if the lodging stock was undervalued, overvalued or fairly valued compared to the non-lodging stock. The results are mixed in nature that yearly analyses show that the lodging stock is not consistently undervalued, but the pooled analysis shows that the lodging stock is undervalued. One major limitation is the small sample size of the lodging data. Therefore, collecting bigger sample size of the lodging firm may provide better insights on this issue

Dynamic Ticket Pricing in Sport: An Agenda for Research and Practice

For decades, the airline and hotel industries have regularly changed prices to keep pace with fluctuating levels of consumer demand. This demand-based approach to pricing is referred to as revenue management. Meanwhile, the sport industry has traditionally underpriced tickets using a cost-based approach in order to maximize attendance and promote fan satisfaction. However, as operating costs have grown, sport organizations are now forced to reconsider these conservative pricing practices. Subsequently, in 2009, the San Francisco Giants were the first team to utilize dynamic pricing, which is a strategy that mirrors the revenue management approach. While data supporting or refuting the reported benefits of this approach in sport remains sparse, the current paper utilizes the research on revenue management to develop an agenda of considerations regarding the use of demand-based ticket pricing strategies in sport. The paper is designed to guide researchers as they begin to explore the strategy\u27s myriad of critical (and yet unexplored) issues. Additionally, practical implications of adopting this pricing strategy in sport are considered

Tourism and Economic Globalization: An Emerging Research Agenda

Globalization characterizes the economic, social, political, and cultural spheres of the modern world. Tourism has long been claimed as a crucial force shaping globalization, while in turn the developments of the tourism sector are under the influences of growing interdependence across the world. As globalization proceeds, destination countries have become more and more susceptible to local and global events. By linking the existing literature coherently, this study explores a number of themes on economic globalization in tourism. It attempts to identify the forces underpinning globalization and assess the implications on both the supply side and the demand side of the tourism sector. In view of a lack of quantitative evidence, future directions for empirical research have been suggested to investigate the interdependence of tourism demand, the convergence of tourism productivity, and the impact of global events

Examination of Optimal Leverage Point for the Lodging Firms

Even though a general capital structure literature suggests an existence of an optimal leverage point, it is extremely difficult to know the exact optimal leverage point for an entire economy, an industry, or a firm if possible at all. Several studies in general finance and accounting literature have examined this particular issue and found some consensus that there are differences in optimal leverage ratio among different industries. However, the focus of those studies was not on the lodging industry and most studies did not include the lodging data for their analysis. Further, no exclusive comparison between the mean and median leverage ratio and between the expansion and recession period have been made. The purpose of this study is, therefore, to investigate the optimal leverage point in the lodging industry setting. In detail, this study examines validity of using industry mean and median leverage ratios as the optimal leverage point for lodging firms and also compares the validity of the two industry ratios between the expansion and recession period. For the entire sample period, 1980 to 2005, the results of this study suggest that the median lodging debt-to-equity ratio works better than the mean value as an optimal leverage point for lodging firms. However, when the ratios were compared under the two different economic conditions, the both worked poorly under the expansion period, but worked well under the recession period. One possible explanation of this phenomenon is that during expansion periods, the economy grows and the market has an expectation that the economy will keep growing for a while. Therefore, the market may become less sensitive to a certain facts such as a capital structure issue meaning that even though a firm moves away from the optimal leverage point, the market may expect that the firm will still perform well because of the overall economic condition. On the other hand, during recession periods, the market may become more sensitive and tend to punish the firms more that do not perform well

An Examination of Financial Leverage Trends in the Lodging Industry

This study examines financial leverage trends of firms in the US lodging industry for the period 1980 to 2005. It compares mean and median leverage ratio estimates of lodging firms to find which works better as an industry norm during the entire sample period, as well as during economic expansion and recession periods. Research results suggest that the industry median leverage ratio is more valid than the mean industry ratio as a proxy for the lodging industry. Results also suggest that the industry median leverage ratio is valid during the recession periods, but not during the expansion periods

Moderating Effects of Capital Intensity on the Relationship between Leverage and Financial Distress in U.S. Restaurant Industry

The main purpose of the current study, therefore, is to examine a moderating effect of capital intensity on the relationship between leverage and financial distress for publicly traded U.S. restaurant firms during the period 1990 to 2008. Two specific research questions are: 1) Do a firm’s leverage and capital intensity influence the firm’s financial distress? 2) Does a firm’s capital intensity moderate the effect of the firm’s leverage on financial distress? The findings suggest that capital intensity shows a significant and positive moderating effect. While leverage increases the degree of financial distress, and capital intensity decreases the degree, independently, the magnitude of leverage’s worsening impact on financial distress decreases as the level of capital intensity increases

An Analysis of the Major Equity Valuation Models as Applied to the Lodging Industry

Very few academic studies have systematically attempted to evaluate equity valuation models in the lodging industry. Most academic papers in the mainstream finance and accounting literature either exclude hospitality firms or do not examine it in detail. For example, it is very common to find academic papers that exclude all service sector firms. Lodging sector has many characteristics that differentiate it from other economic sectors in the US. For example, lodging is very capital intensive, however, the performance is heavily dependent upon the quality of the service interaction with the customers. Therefore, we cannot directly conclude that the results of research that has excluded lodging firms can be extended to lodging firms. Two of the main generic models used in academic research are the discounted free cash flow valuation model and the abnormal earnings valuation model. Many researchers have used these models to generate valuation for publicly traded firms, for example, Francis, Olsson and Oswald (2000) and Penman and Sougiannis (1998). The Francis et al. (2000) paper attempts to compare the relative accuracy, consistency and explainability of three kinds of models. However, Lundholm and O’Keefe (2001) show that if properly implemented, all valuation models should get similar estimates of equity value. Other papers support their conclusions. The main purpose of this paper is to explore the major equity valuation models developed in the mainstream accounting and finance literature, operationalize them for the lodging industry, systematically examine and operationalize the assumptions needed for each model and finally examine the forecasting ability of these models on lodging firms. The study selects two widely used equity valuation models, discounted free cash flow and abnormal earnings models