Toward a resolution of the cost of equity conundrum in the lodging industry: a conceptual framework

Abstract

The firm value estimate is derived from accounting and finance practices that focus on physical assets as opposed to intangible assets (Arthur Andersen Hospitality Leisure Executive Rep. 5 (1998) 2). The cost of equity estimation models used in firm valuation and capital investment decisions fall short of tapping important constructs to firm value, especially the intangible ones. The purpose of this study is to assess the present cost of equity capital determination models and provide a view of their relevancy for the lodging industry while simultaneously attempting to propose new options to meet the valuation and capital budgeting needs of the lodging industry. r

Time‐varying Cost of Equity Capital in Southeast Asian Countries

“…Easton and Monahan, 2003;Gode and Mohanram, 2003;Botosan and Plumlee, 2004). Although these different models or techniques provide estimates of 'reasonable' magnitude, the search for a model that is easy to use and provides accurate and stable estimates over time is not over yet (Fama and French, 1997;Madanoglu and Olsen, 2005).…”

“…yield can only be calculated for those firms that pay regular dividends. Madanoglu and Olsen (2005) argue that another major difficulty in applying DGM lies in determining the specific dividend growth rate. Fama and French's (1993) three-factor model is an extension of the CAPMtype structure.…”

Estimating Cost of Equity in the Restaurant Industry: What IS Your Required Rate of Return?

“…Second, it maintains that the restaurant industry practitioners and academicians Sheel's (1995) and Madanoglu and Olsen's (2005) call for developing industry specific models to estimate the cost of equity capital. It is the authors' contention that this collaboration will be one of the keys for the restaurant executives to invest in projects that will generate positive cash flows over the life of their investments.…”

“…Additionally, their beta coefficients are lower than the benchmark, meaning they bear lower systematic risk than that of market portfolio. Madanoglu and Olsen (2005) approached this issue in a different manner. They acknowledge several costs of equity estimation models in order to decide on the best fitting model to the hospitality industry.…”

State-of-the-art cost of capital in hospitality strategic management

“…In Madanoglu and Olsen (2005) proposed a conceptual framework that called for the inclusion of some of the intangible variables into the cost of equity estimation in the lodging industry. Some of these variables were human capital, brand, technology, and safety and security.…”