Tarik Dogru

Under- vs over-investment: hotel firms’ value around acquisitions

Purpose The purpose of this study is to analyze the extent to which under- and over-investment problems affect hotel firms’ value around the time when acquisitions are announced. Design/methodology/approach Hotel firms are classified based on their financial constraints (under-investment), corporate governance mechanisms (over-investment) and organizational structures. Multivariate analyses are conducted utilizing the panel ordinary least squares regression to examine the effects of financial constraints, corporate governance mechanisms and organizational structures on acquisition returns. Findings The results show that financial constraints have a larger effect on the firm value compared to the effect of corporate governance. Also, acquisitions are viewed as over-investments in poorly governed, franchising and hotel-real estate investment trust (REIT) firms. Research limitations/implications The analyses are limited to gains from acquisitions in the hotel industry. Therefore, future studies may examine the effects of capital expenditures and cash holdings on hotel firm value. Practical implications Acquisitions could help financially constrained firms reduce informational asymmetries. Firms could expand through franchising when they are financially constrained. However, franchising firms should take restrictive actions to control managers from making acquisitions. The hotel-REIT organizational form does not seem to cause under-investment problems, and it functions as an additional corporate governance mechanism. Originality/value In addition to the C-corporation organizational structure, hotel firms extensively adopt REIT and expand through franchising, which might affect under- and over-investment problems. Nonetheless, little is known about whether capital investments create or reduce value for hotel firms. This study helps to explain how financial constraints, corporate governance mechanisms and organizational structures affect hotel firms’ value.

Theory of Vulnerability and Remarkable Resilience of Tourism Demand to Climate Change: Evidence from the Mediterranean Basin

Climate change has become one of the most important challenges for societies around the world. However, the tourism industrys vulnerability and readiness to cope with climate change are unclear. This study advances the current body of knowledge by conceptualizing and empirically analyzing the effects of climate change on tourism demand using a vulnerability theoretical framework. Specifically, the effects of exposure; sensitivity; human well-being; and economic, social, and political development are tested on 17 countries located in the Mediterranean Basin during the period of 1995–2012. The findings of the study demonstrate the remarkable resilience and adaptive capacity of the tourism industry. Contrary to the notion that climate change will result in disastrous outcomes for the tourism industry in the Mediterranean Basin, improvements in overall well-being and progress in economic, social, and political developments seem to more than offset the decline in tourism demand due to climate change. The findings point to new theoretical and practical implications for coping with negative climatic changes and advance future academic research in the area.

Investment and Firm Value: Is There an Optimal Investment Level in Hotel Firms?

ABSTRACT This study aimed to examine whether an optimal investment level exists in hotel firms. The authors examined the quadratic relation between investments and hotel firm value. The results show that there is an optimal investment level that maximizes firm value. However, the optimal investment level varies across firms on the basis of the quality of investment opportunities or under- and overinvestment problems. The optimal investment level is higher for hotel firms with underinvestment problems, which suggests that these firms have valuable investment opportunities. However, the optimal investment level is lower for hotel firms with overinvestment problems, which implies that shareholders of these firms perceive additional investments to be value destroying. These results support the postulations of the Q theory of investment, pecking order theory, and free cash flow theory. Practical implications are discussed in the realm of financing, investment, and dividend policies.

Modeling Turkish outbound tourism demand using a dynamic panel data approach

The purpose of this study is to model and empirically test outbound tourism demand of Turkish travel market. For this purpose, panel cointegration tests and panel fully modified ordinary least squares method, which produces asymptotically unbiased and normally distributed coefficient estimates, are employed for 12 Turkish travel markets. The results indicate that there is a cointegration relation in the model, and income, relative price, and word of mouth are significant determinants affecting outbound tourism demand of Turkey for the 12 destinations. Managerial implications are discussed.

Stock Market Valuation of Hotel Firms' Sustainable Initiatives

This study aimed to examine stock price reactions to announcements of Leadership in Energy and Environmental Design (LEED)-certified hotel openings. Using an event study method, the authors analyze news related to 15 hotel openings between the periods of 2009 and 2013. The results show that abnormal returns on stocks are significantly negative after the announcements of LEED-certified hotel openings, suggesting that stock market investors perceive sustainable investments to be value-decreasing projects in the short-term. Practical and theoretical implications are discussed within the framework of the microeconomic theory of pollution abatement.

Marriott Starwood merger: what did we learn from a financial standpoint?

The purpose of this paper is to measure and observe stock market and investor reactions (benchmark adjusted cumulative abnormal returns (CARs)) to the announcement of Marriott’s acquisition of Starwood and related merger and acquisition (M&A) news and related activities over a two-year period.,Empirical models and quantifications were developed and tested through event study analysis to test the Marriot-Starwood M&A news and related activities and to observe the abnormal stock return patterns. Several data sources were employed including Factiva by Dow Jones, Wall Street Newspaper, CRSP/COMPUSTAT merged files, and ValueLine Research.,This paper provides financial insights and outcomes of pre-, during, and post-Marriot-Starwood merger. While equity returns to Starwood were mostly flat, Marriott experienced negative returns around the acquisition announcement and anytime a news article appears following the announcement. However, performance proxies showed that Marriott’s shareholders gained superior buy and hold returns following the acquisition in the long run.,Short-term event study methodology might be less than perfect in examining the stock returns to acquisitions. Therefore, future research is encouraged to test and observe Marriot-Starwood merger using longer time periods with predictive analysis to check the further usability of the results.,The study’s findings practically signal that overreaction in the short term is followed by a correction with an improvement in returns and sales performance of Marriot. In the majority of the acquisitions, integration process is not planned until after the acquisition announcement or the deal completion.,This paper contributes to the existing literature by demonstrating the financial issues, challenges, and outcomes of the biggest merger in the history of the global lodging industry.