Recent Trends in the Lodging Industry

REFEREED ARTICLES

Is the Hospitality Industry More Likely to Re-Price Stock Options? 

            Basak Denizci 

Hospitality firms are known to be sensitive to the economy and movements in the market. When overall performance of a firm is poor because of an adverse market condition, hospitality managers should not be panelized for the decrease in their firm's stock price. In such cases, it is acceptable to re-price stock options to realign the incentives and to minimize the agency problem. This paper examines whether hospitality firms are more likely to re-price their stock options after a stock price decrease that accompanies a market wide fall. Although the results of this study are consistent with prior literature, the stock option re-pricing hypothesis is marginally supported. As such the practice of re-pricing stock options in the hospitality industry is better understood.

The effectiveness of a brand call-center in revenue recovery for Hospitality Firms

            Daniel J. Mount and Qu Xiao  

As organizations gradually recognize that enhanced customer satisfaction leads to better customer retention and profitability, the economic value of customers has been increasingly studied in various industries and individual companies in the past decade (e.g., Goodman, Ward, & Yanovsky, 1998; Reinartz & Kumar, 2000; Zeithaml, 2000).  There has also been a significant increase in research on service recovery (Brown, Cowles & Tuten, 1996).  However, very little research has aimed at the economic value of customers retained by effective service recovery in general and none, specifically, in the hotel industry.  This paper presents a methodology to measure revenue recovery and the results of a six-year study on the effectiveness of a hotel call-center in recovering revenue for the hotel brand.  The results show that the call-center has been effective in recovering revenue in that the recovery has been significant and is greater than the administrative costs of the call-center operation.

Casino Stocks and Katrina: An Example of Market Over-Reaction?

            Frank R. Flanegin, Denis P. Rudd, Patrick J. Litzinger and Richard Mills

Hurricane Katrina was the six strongest Atlantic hurricane ever recorded and the third strongest hurricane on record in the United States. According to experts, it was the costliest and one of the deadliest hurricanes in the history of the United States. How efficient was the market in anticipating the impact of Hurricane Katrina on the Gulf coast casino industry? This study uses the event study methodology to investigate the stock market’s reaction affecting equity prices of small casino companies with operations on the Gulf Coast centered on Biloxi, Mississippi. Cumulative Abnormal Returns (CARs)  for 1 day, 3 day, and  6 day event windows are examined.. As such the impact of Katrina on stock prices of casino firms in the Gulf Coast is better understood.

An Examination of Financial Leverage Trends in the Lodging Industry

            Seoki Lee

This study examines financial leverage trends of firms in the US lodging industry for the period 1980 to 2005. It compares mean and median leverage ratio estimates of lodging firms to find which works better as an industry norm during the entire sample period, as well as during economic expansion and recession periods.  Research results suggest that the industry median leverage ratio is more valid than the mean industry ratio as a proxy for the lodging industry.  Results also suggest that the industry median leverage ratio is valid during the recession periods, but not during the expansion periods.

  INVITED ARTICLE 

AHFME Academic Member 2005 Total Annual Earnings Survey 

Raymond S. Schmidgall 

This study was conducted to determine the 2005 annual earnings of hospitality financial management educators.  Fifty percent of AHFME’s members affiliated with educational institutions responded.  Annual base salaries ranged from $45,000 to $150,000.  The lowest-paid member is an instructor while the highest paid member is a full professor.  Most respondents supplement their base salaries by both teaching during summer school and consulting.  The total annual earnings of members ranged from $45,500 to $240,500.  Hospitality financial management educators appear to be more highly compensated than the average college professors.

VIEWPOINT

An Extension of Burgernomics: Using a Full-Service Restaurant Product to Measure Purchasing Power Parity

            David Bojanic, Rod Warnick and Michael Musante

The purpose of this paper is to determine if the price of a ‘burger’ at a themed restaurant chain (i.e., Hard Rock Café) in the casual dining segment is a better indicator of purchasing power parity (PPP) than the price of a ‘burger’ at a quick-service restaurant chain (i.e., McDonald’s).  The “Big Mac Index” published by The Economist is the source for the price of a Big Mac sandwich in each of the represented countries.  The index was originally developed to measure purchasing power parity based on exchange rates.  An alternative index, the Legendary Burger Index, is developed and compared to the Big Mac Index to determine the accuracy of the prices for the two types of restaurants in measuring purchasing power parity.  The Legendary Burger Index was shown to perform slightly better than the Big Mac Index when examining currency valuations and the relationship between the burger price and various economic variables. 

  BOOK REVIEWS

DeFranco, Agnes and Lattin, Thomas Hospitality Financial Management

ABSTRACTS OF PRESENTATIONS AT THE 2006 ANNUAL AHFME RESEARCH SYMPOSIUM

 Estimating Cost of Equity in the Restaurant Industry: The Influence of Index and Variable Selection

            Melih Madanoglu and Ersem Karadag

The impact of dividend policy on institutional holdings: hotel REITS and non-REIT hotel corporations

            Seonghee Oak and Michael C. Dalbor

Performance of India's Hotel Industry in the Era of Economic Reforms - A Critical Assessment of the Investment and Business Climate

            A.J. Singh and Manav Thadani

Causes and consequences of Cash Flow Sensitivity: Empirical Tests of the US Lodging Industry

             Amit Sharma and Arun Upneja

Examination of Optimal Leverage Point for the Lodging Firms

            Seoki Lee