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Leverage, Volatile Future Earnings Growth and Expected Stock Returns
Get PDFWe provide theory and evidence to complement Choi\u27s [RFS, 2013] important new insights on the returns to equity in `value\u27 firms. We show that higher future earnings growth ameliorates the value-reducing effect of leverage and, because the market for earnings is incomplete, reduces the earnings-risk sensitivity of the default option. Ceteris paribus, a levered firm with low (high) earnings growth is more sensitive to the first (second) of these effects thus generating higher (lower) expected returns. We demonstrate this by modeling equity as an Asian-style call option on net earnings and find significant empirical support for our hypotheses
Sound Off #1-2 Industry Professional Response
No full textThe U.S. solar industry has been able to dramatically decrease system costs over the past 5 years through the mobilization of global manufacturing and a more mature deployment workforce. Despite these successes, U.S. prices are still higher than they are in many parts of the developed world. Some of this gap will be narrowed in the coming years through public and private sector initiatives to lower customer acquisition costs, and relieve permitting and interconnection issues. However, one of the largest levers the industry aims to use is gaining access to public capital markets. If the solar industry can lower the cost of capital and gain access to a much larger pool of investors, it will dramatically impact its competitive position within the energy sector; particularly as solar asset’s costs are so frontloaded compared to other energy generation technologies. One of the avenues that the industry is pursuing is being able to raise capital through REITs, which offer access to the public markets at relatively low yields. Although a true solar REIT is not yet possible, investors can still benefit from having solar power based income in their REIT
Exploring the Relationship between Eco-certifications and Resource Efficiency in U.S. Hotels
No full textThis study examines the impact of eco-certifications on two aspects of resource efficiency in hotel operations—operational efficiency and guest-driven efficiency. We analyze the effect of the Travelocity.com’s ecoleaf label, which designates hotels that have received eco-certification from any of several organizations. To earn the ecoleaf, the certification must be from a second or third party and must be available for audit. We analyze the relationship between eco-certifications and resource efficiency driven by both operations and customers. Using a large scale dataset from PKF Hospitality Research on the U.S. hotel industry, we found that eco-certified hotels recorded higher operations-driven and customer-driven resource efficiency. While the specific ratios vary according to a hotel’s chain scale, it’s clear that this group of U.S. hotels benefited from earning certification
Assessing the Benefits of Reward Programs: A Recommended Approach and Case Study from the Lodging Industry
No full textTwo groups of independent hotels experienced an average 50-percent increase in annual revenue when customers joined their loyalty programs, almost entirely due to increased patronage. These guests were already the hotels’ best customers, but the number of annual room-nights they purchased increased by an average of 50 percent after they joined the program. On the other hand, ADR for the loyalty program guests increased modestly (1 percent for one hotel group and 5 percent for the other). The analysis compared customer behavior of matched pairs of hotel guests, where one member of the pair had enrolled in the hotels’ loyalty program and the other had not. By identifying matched pairs of the guests before enrollment, the analysis could record the differential behavior of guests after one member of the pair joined the loyalty program
The Influence of Online Reputation and Product Heterogeneity on Service Firm Financial Performance
Get PDFUsing two proprietary data sets, ReviewPro’s Global Review Index and Smith Travel Research’s performance database, we examine the influence of online review scores on service firm financial performance. We conceptualize online reviews as a measure of a service firm’s reputation and demonstrate that higher scores have a positive relationship to a hotel’s financial performance as measured by revenue per available room (RevPAR). We demonstrate that a 1% increase in a hotel’s online reputation score is related to a 0.99% increase in RevPAR. We also demonstrate that naturally occurring differences in the heterogeneity of different product classes moderates the relationship between review score and performance. The influence of online reviews monotonically decreases as the hotel class level increases (e.g., upscale hotels are less affected by reviews scores than midscale hotels). We also demonstrate that when controlling for occupancy, online consumer review ratings have a greater influence on a firm’s pricing power (average daily rate) for service/product categories with more depth, i.e., for products positioned within categories of diverse offerings. As a robustness check, we examine the influence of scores at the individual rather than aggregate level by using choice data from a major North American travel agency. Replicating our aggregate results, choice data affirm the positive impact of review scores on hotel selection as well as the moderating role of hotel type
First Quarter 2014: Prices Have Not Caught Up to Growth in RevPAR
No full textHotel prices are not yet reflecting the positive momentum in RevPAR. However, we expect prices for hotel properties to rise in the next quarter based on our repeat sales index. A comparison of current operating yields relative to borrowing cost suggest that hotel investors expect most of investment performance to come from capital gains when the hotel is sold rather than operating performance. We also expect a further compression in hotel cap rates going forward. However, we anticipate positive price momentum to occur in smaller hotels with moderate increases (if any) for larger hotels based on our forward looking barometers. This is report number 10 of the index series
Between We Buy Houses and We Buy Wholesale
No full textThe distressed residential real estate market has always depended upon the innovations of private, micro investors to reorganize the housing market and redistribute distressed properties for the benefit of homeowners, home buyers, and lenders alike. This Article asks whether recent trends in residential distressed real estate investing have created a new niche for operationally-sophisticated, yet small and nimble, private investors
On Investor Preferences and Mutual Fund Separation
Get PDFWe extend Cass and Stiglitz’s analysis of preference-based mutual fund separation. We show that high degrees of fund separation can be constructed by adding inverse marginal utility functions exhibiting lower degrees of separation. However, this method does not allow us to find all utility functions satisfying fund separation. In general, we do not know how to write the primal utility functions in these models in closed form, but we can do so in the special case of SAHARA utility defined by Chen et al. and for a new class of GOBI preferences introduced here. We show that there is money separation (in which the riskless asset can be one of the funds) if and only if there is a fund (which may not be the riskless asset) with a constant allocation as wealth changes
Competing Through Customization: Using Human Resource Management to Create Strategic Capabilities
No full textGiven the increasingly diverse customer preferences, customization has become a strategic opportunity for organizations to create value. There is no systematic effort, however, in understanding the implementation of customization as a competitive strategy. Based on theories of resources and capabilities and the multidimensional view of economic rents, we derive three strategies of customization—mass production, mass customization, and total customization—each creating a unique value for customers and incurring different costs. To bridge the gap in the human resources literature in delineating the strategic capabilities as an intermediate outcome of human resources systems, we further draw from organizational psychology perspectives to infer how the strategic capabilities for customization can be created through different human resources management systems
Generalized Systematic Risk
Get PDFWe generalize the concept of .systematic risk to a broad class of risk measures potentially accounting for high distribution moments, downside risk, rare disasters, as well as other risk attributes. We offer two different approaches. First is an equilibrium framework generalizing the Capital Asset Pricing Model, two-fund separation, and the security market line. Second is an axiomatic approach resulting in a systematic risk measure as the unique solution to a risk allocation problem. Both approaches lead to similar results extending the traditional beta to capture multiple dimensions of risk. The results lend themselves naturally to empirical investigation