Theory of Under- and Overinvestment: An Empirical Examination of Value Creation and Destruction in Hospitality Firms.

摘要

In this dissertation, I study underinvestment and overinvestment theories by examining the value creation and destruction in hospitality firms in three separate but coherent and cohesive research papers. In the first study, I analyze the extent to which financial constraints (underinvestment) and corporate governance (overinvestment) affect hotel firms' value around acquisition announcements. In addition to the traditional form of corporate structure (i.e., C-corporation), hotel firms extensively adopt the organizational forms of franchising and REIT, which might affect under- and overinvestment problems. Nonetheless, little is known whether capital investments create or reduce value for hotel-REITs and franchising hotel firms. The results show that acquisitions are viewed as overinvestments in franchising and hotel-REIT firms, suggesting that hotel firms adopt franchising and REIT to reduce overinvestment and agency problems. Although the average effect of financial constraints is larger for financially constrained firms, weak corporate governance seems to be more problematic than financial constraints for hotel firms. In the second study, I examine the sensitivity of capital and franchising investments to internal funds in the hotel industry. While financially constrained firms rely on internal funds to reduce underinvestment problems, they may also rely on franchising to expand their investments. However, if firms are not constrained, internal funds may lead to overinvestment problems and franchising may exacerbate problems with empire building. By estimating the sensitivity of investment to cash flow, I find that the availability of internal funds reduces underinvestment problems more than it causes overinvestment problems. Furthermore, both financial constraints and agency costs lead firms to expand through franchising. In the third study, I investigate the relationship between marginal cash and firm value and the extent to which franchising, financial constraints, and corporate governance affect this relationship in hotel firms. The results show that cash is more valuable for financially constrained firms relative to unconstrained firms, while it is less valuable for poorly-governed firms relative to well-governed firms. Also, financial constraints have a greater effect on the marginal value of cash than weak corporate governance. While franchising could solve underinvestment problems, it makes poorly-governed firms more vulnerable to overinvestment.