Simultaneous Impacts of International Diversification and Financial Leverage On Profitability

This study examines international diversification and financial leverage in a simultaneous equations model to understand how they affect profitability after accounting for the endogeneity between strategic and financial decisions. An analysis of hotel companies showed an inverted U-shaped relationsh...

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Bibliographic Details
Published inJournal of hospitality & tourism research (Washington, D.C.) Vol. 33; no. 3; pp. 347 - 368
Main Authors Jang, SooCheong, Tang, Chun-Hung
Format Journal Article
LanguageEnglish
Published Los Angeles, CA SAGE Publications 01.08.2009
Subjects
profitability
hotel companies
international diversification
financial leverage
strategic management
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Summary:This study examines international diversification and financial leverage in a simultaneous equations model to understand how they affect profitability after accounting for the endogeneity between strategic and financial decisions. An analysis of hotel companies showed an inverted U-shaped relationship between financial leverage and profitability, implying an optimal leverage pattern for maximum profitability. The study also found that international diversification significantly, but only indirectly, influences the profitability of hotel firms through the moderating role of leverage. This indicates that financial leverage is more closely related to profitability than international diversification. However, the results also suggest that the effect of international diversification still needs to be considered when making financial decisions.
ISSN:1096-3480
1557-7554
DOI:10.1177/1096348009338529