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.
This study investigates the valuation effects of earnings quality on a hotel's firm value between 1991 and 2017.A unique perspective from the financial crisis period is utilized to explore the changes further when hotel firms face financial distress. We adopt the ordinary least squares (OLS) regression method in this study.
Generalized Least Squares (GLS) regression andPetersen's Clustered Standard Error Model to confirm the validity of results. Seemingly unrelated regressions (SUR) analysis is adopted to compare the impact of the financial crisis on subsamples of low and high Altman Z-scores and subsamples of non-Big-4 and Big-4 firms. Substantial evidence supports our assertion that increased discretionary accruals and earnings management bring down earnings quality and, in turn, decrease a hotel's firm value. Results reinforce that the 2008 financial crisis had an impact on the relationship between earnings management and hotel firm value.The negative effect that discretionary accruals and earnings management have on hotel firm value is mitigated for hotel firms with low credit strength or not audited by one of the Big-4 firms. Stockholders of hotel firms should be aware of the impact and enforce additional measures to control earnings management activities during a financial crisis.
This paper empirically analyzes the impact that director blockholders have on earnings management. We argue that having a blockholder serve on the board of directors will improve a firm's corporate governance due to having both the ability and incentive to correct problems in a firm. We provide evidence that the presence of blockholders on the board of directors lowers the amount of abnormal working capital accruals caused by CEO incentives. We show that this is primarily done by reducing abnormal increases in inventory. This finding is most robust among busy boards, providing evidence that director blockholders can provide strong corporate governance in the absence of an attentive board of directors. Our findings suggest that director blockholders can provide an important role for firms and may prevent managers from taking value‐destroying actions.
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