Financing Theories and Financing Practices: A Case Study of Two Casino Companies

Abstract

This paper analyzes the financing behaviors of two major casino companies, Mirage Resorts, Inc., and Circus Circus Enterprises, Inc., in their recent expansion projects. It compares the two companies' financing practices with the three existing financing theories, namely the traditional trade-off theory, the pure pecking order theory, and the modified pecking order theory. It appears that the modified pecking order theory can best describe the two companies' financing behaviors.

Differences in Financial Characteristics Between Small and Large Firms: An Empirical Examination of the Casino Industry

“…The heavy dependence on discretionary income for entertainment makes casino hotel revenue more volatile than regular hotels. Evidence of the high risk is reflected in its beta, which was reported by Gu and Ku (1997) to be 1.22 in 1994 compared to the hotel industry average of 0.79. Overcapacity intense competition, saturation of market, unstable demand, and lower credit ratings of casino firms have increased the perceived risk of casino firms.…”