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How hotel firm value fluctuates with alternative leveraging strategies

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  • Ying Chen
  • Eric Valenzuela
  • Don Capener

Abstract

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.

Suggested Citation

  • Ying Chen & Eric Valenzuela & Don Capener, 2024. "How hotel firm value fluctuates with alternative leveraging strategies," American Journal of Economics and Sociology, Wiley Blackwell, vol. 83(1), pages 177-197, January.
    • Handle: RePEc:bla:ajecsc:v:83:y:2024:i:1:p:177-197
    DOI: 10.1111/ajes.12528
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    References listed on IDEAS

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