The Determinants of the Decision To Use Financial Derivatives in the Lodging Industry

Abstract

This study investigates the determinants of the decision to hedge in a sample of lodging firms over a 5-year period from 2000 to 2004. Using a probit model, the results show that underinvestment costs, financial distress costs, managerial risk aversion, information asymmetry, cash-flow volatility, proportion of floating-rate debt, foreign sales ratio, and firm size are significant determinants of the decision to hedge. The findings also document that lodging firms predominantly use interest rate swaps and options to manage interest rate risk. These findings are generally consistent with the theory of hedging as well as with prior research findings on the decision to hedge.

The relationships among supply chain partnerships, customer orientation, and operational performance: the effect of flexibility

“…In a constantly changing environment, flexibility provides food service companies the capacity to adapt (Singh and Upneja 2008), and integration is a necessary prerequisite given the nature of inter-firm dependence. We argue that interactivity also significantly moderates the relation between two integration and operational performance.…”

Internationalization and exposure to foreign currency risk: An examination of lodging firms

“…The only option for domestic lodging firms to counter cash flow volatility would be to use financial derivatives, such as forwards. However, the use of such derivatives is currently very limited for lodging firms due to the lack of visible foreign currency exposure on their financial statements and the considerable costs of such derivatives (Singh and Upneja, 2008). Consequently, the resulting economic exposures of domestic firms in the lodging industry are likely to be greater than their multinational competitors.…”

“…Most studies on foreign currency exposure simply rule out domestic firms by explicitly focusing on multinational corporations and extensively traded industries, presumably due to the fact that even highly internationalized firms show a lack of evidence in estimation (Bartram and Bodnar, 2007). Meanwhile, the examination of lodging firms' foreign currency risks has been limited to translation and transaction exposure (Singh and Upneja, 2008). Therefore, foreign currency risk is often ignored due to its invisibility in managing lodging firms.…”

The Impact of Regulation on Corporate Hedging Activities and the Response of Corporates – A Preliminary Conceptual Framework

“…While for example Nance, Smith, and Smithson (1993) and Sprčić (2008a) did not find evidence supporting the financial distress argument, other studies found evidence that firms with lower liquidity and higher leverage are more likely to use derivatives. Among others following studies have found evidence, Dolde (1995), Mian (1996), Fok, Carroll, and Chiou (1997), Goldberg, Godwin Kim Tritschler, and Myung-Sun (1998) and Haushalter (2000), Judge (2002), Fehle and Tsyplakov (2005), Singh and Upneja (2008), Afza andAlam (2011), Adam, Fernando, andSalas (2015) and Judge (2015).…”

“…A huge number of studies have presented evidence that provides support for this rationale to hedge, amongst others Fok et al (1997), Goldberg et al (1998), Haushalter et al (2002), Sprčić, Tekavčič, and Šević (2008b), Singh and Upneja (2008), Afza and Alam (2011), Chernenko and Faulkender (2012), Chaudhry et al (2014), Deng et al (2016).…”