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The valuation effects of hotel mergers

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  • Seongsu David Kim

Abstract

This study aims to evaluate the merger effect of hotel mergers between 1981 and 2019 and assess which theoretical framework mergers in the lodging industry would conform. Previously, no work has been done about the nature of hotel mergers using the combined return, while this lack of thoroughness in assessing the motivation of those mergers has triggered different interpretations. The design of this study follows the traditional framework of an event study by assessing various types of cumulative abnormal returns around the announcement date. The key finding of this study suggests that the nature of hotel mergers strongly supports the synergy hypothesis. In order to explore the causal inferences of this result by bidder and target, an additional analysis was conducted by regressing the cumulative abnormal returns on accounting measures as well as merger- and hotel industry–specific variables. This panel data analysis showed that in a merger where both the bidder and target are affected, the amount of total debt, being engaged in the casino business, and whether the merger was involving a stock swap sent out positive signals to the market, whereby longer duration and higher deal value lifted the undervalued target. JEL Classifications : G34 (Mergers; Restructuring; Corporate Governance)

Suggested Citation

  • Seongsu David Kim, 2023. "The valuation effects of hotel mergers," Tourism Economics, , vol. 29(2), pages 348-377, March.
    • Handle: RePEc:sae:toueco:v:29:y:2023:i:2:p:348-377
    DOI: 10.1177/13548166211050475
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    References listed on IDEAS

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    More about this item

    Keywords

    empire-building hypothesis; hospitality and lodging industry; hotel merger; synergy hypothesis; valuation effect;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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