Financing Decisions and Performance of Italian SMEs in the Hotel Industry

[We’re pleased to welcome author Dr. Marco Botta of the Università Cattolica del Sacro Cuore, and the Università degli Studi dell’Insubria. Dr. Botta recently published an article in Cornell Hospitality Quarterly entitled “Financing Decisions and Performance of Italian SMEs in the Hotel Industry,” which is currently free to read for a limited time. Below, Dr. Botta reflects on the inspiration for conducting this research:]

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The Global Financial Crisis that started in 2008 in the US and soon spread globally has highlighted how financial decisions can have a strong impact on the real economy. The way firms (and people as well) raise capital may produce important consequences on their future. The European debt crisis in 2011 showed how even governments cannot escape the consequences of bad financial decisions.

In this respect, hotel companies are extremely capital-intensive, needing to devote large amounts of funds to buy and furbish real estate properties where to run their hotel business. This implies that they often have to raise significant amounts of funds from external sources, as internal resources may not be sufficient to cover their investment needs. This may be particularly troublesome for small and medium companies (SMEs) that, in the Italian experience, tend to rely heavily on bank loans to cover their capital needs. This is what is known as a pecking-order type of behavior: firms first use internal resources, and then debt. Additional equity capital is used only as a last resort, and this may induce firms to constantly run high levels of debt.

My research shows how firms should instead adopt more sophisticated financial decisions: having a systematically higher-than-optimal level of debt induces firms to reduce their investments, as shown by the lower growth in assets, and this ultimately results in lower performance. On the other hand, firms using too little debt also experience a decrease in performance, due to a lower operating efficiency: the lack of pressure from mandatory debt repayments may produce a more “relaxed” atmosphere, so that hotel companies end up losing effectiveness in their ability to maximize revenues and keep costs under control.
Overall, my research shows how managers of hotel SMEs should target an optimal level of debt that should be achieved by balancing two contrasting effects. On the one hand, avoiding excessive levels of debt allows maintaining financial flexibility, so that a company is able to pursue investment opportunities whenever they become available. On the other hand, having a moderate amount of debt induces firms to operate more efficiently, likely because of the pressure of mandatory debt repayment and of the scrutiny of external debtholders who want to protect their investment.

From an academic perspective, the research sheds light on the long-standing debate on the existence of an optimal capital structure. My results show that Italian hotel SMEs do not appear particularly keen at targeting an optimal level of debt. Their behavior is instead mostly in line with the predictions of the pecking order theory: they used internal funds as their primary source of capital, and they prefer debt over equity when they need to raise new external funds. However, the relationship between capital structure and financial performance shows that firms indeed face an optimal level of debt, providing evidence in favor of the empirical validity of the trade-off theory of capital structure.

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Defining Marijuana Tourism

Dr. Lorraine L. Taylor of Fort Lewis College, Colorado, recently published an article in the Journal of Hospitality and Tourism Research, which is entitled “Defining Marijuana Tourism.” We are pleased to welcome her as a contributor and excited to announce that the findings will be free to access on our site for a limited time. Below Dr. Taylor reveals the inspiration behind the research, as well as additional information not included in the final publication.

2JHTR07_Covers.pdfWhat motivated you to pursue this research?

As the first state to sell legal recreational marijuana in 2014, there were many unanswered questions. Within the tourism industry, destinations were unsure how marijuana would impact the visitor experience. While there are certainly many questions to be answered, this study sought to better understand the marijuana tourists, their characteristics, behavior, and motivations.

What has been the most challenging aspect of conducting your research? Were there any surprising findings?

Compared to other tourism research I have completed, this study had a very high response rate from participants. Very few people refused to participate, and rather wanted to contribute to the understanding of marijuana tourism.

In what ways is your research innovative, and how do you think it will impact the field?

Researchers in Colorado had the privilege of being first movers with studying marijuana tourism, though it is critical that data is collected in other geographical locations to validate the findings.

What did not make it into your published manuscript that you would like to share with us?

This project determined that the target market of marijuana tourists is heterogenous. A follow-up study will be conducted to dig deeper into the nuances of different niche segments within the market.

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How Changes in the House Advantages of Reel Slots Affect Game Performance

backgammon-2488089_1920[We’re pleased to welcome authors Dr. Anthony F. Lucas of the University of Nevada and Katherine Spilde of San Diego State University. They recently published an article in Cornell Hospitality Quarterly entitled “How Changes in the House Advantages of Reel Slots Affect Game Performance,” which is currently free to read for a limited time. Below, they reflect on the inspiration for conducting this research:]

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Our motivation for this research stemmed from inquiries regarding extant policies for par selection and from the results of our previous research projects. Our prior work suggested that the highly skewed outcome distributions of modern slot machines would obscure even considerable differences in programmed casino advantages (i.e., pars), especially given the limited number of trials produced by individual players. In spite of these results, many industry stakeholders and casino operators contended that experienced players from high-visitation segments would be able to detect such differences over time. It was for these reasons that we decided to conduct the longitudinal field study with data collected from venues relying on a repeat clientele.

Our work is the first to focus on the longitudinal effects of par on unit-level game performance, within live casino settings. The results of our study were surprising in a couple ways. First, the high par games outperformed their low par counterparts, in terms of theoretical win. This surprised many operators who believed that frequent players would quickly recognize the value of the low par games, which were located a mere three feet away. Second, there was a lack of evidence of play migration, i.e., from the high par games to the low par games. The time series analyses failed to indicate a statistically significant and positive change in the magnitude of differences for both daily coin-in and theoretical win levels, over the sample periods. That is, the data failed to indicate a growing recognition of the differences in pars. If players were able to detect such differences we would expect to see both increased play and theoretical win levels on the low par game, over time. We would also expect to see simultaneous decreases in the same metrics on the high par game. To the contrary, these difference metrics remained stable within each two-game pairing, in spite of the clear economic disincentive for players to risk and lose bankroll to the game with the greater par.

Our results present an empirical challenged to the innervate wisdom regarding player hypersensitivity to par settings. Other slot operating paradigms related to “price” positioning and revenue optimization strategies are also contradicted by our findings. Because these all represent critical operating platforms, we are not sure how this work will ultimately impact the gaming industry. In large part, it depends on the willingness of those within it to re-examine longstanding beliefs and predispositions, and place evidence above instinct. While we expect some operators to accelerate in-house experimentation, it is likely that many will wait for future research, which we have in the pipeline.

It should be noted that without the cooperation of willing casino operators this research cannot be completed. They deserve a great deal of credit for bringing this work to light. Open minds bring positive change.

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How Do Senior Leaders Navigate the Need to Belong?

[We’re pleased to welcome author Dr. Jessy Zumaeta of the University of Chile and the London School of Economics. Dr. Zumaeta recently published an article in Journal of Leadership & Organizational Studies entitled “Lonely at the Top: How Do Senior Leaders Navigate the Need to Belong?” which is currently free to read for a limited time. Below, Dr. Zumaeta speaks about the motivations, challenges, and findings of this research:]

JLOS_72ppiRGB_powerpointWhat motivated you to pursue this research?

I’m very interested in Leadership research and practice. Leaders may contribute to a great extent to organizations’ success or failure. They can make organizations and its people to thrive or, on the contrary, leaders may block employees’ and organizations’ progress. Due to the importance of their role, managers at the top echelons of organizations are usually highly pressured to deliver results. Among other things, I wanted to explore to what extent these pressures affected the person behind the professional mask.

What has been the most challenging aspect of conducting your research

Considering the abundant leadership literature, I wanted to look at it from a novel perspective, so I started to explore these kind of questions: How does it feel to be a senior leader? What are the main challenges? How do top managers experience their role? I did my research to shed light on leaders’ experiences in their role, going beyond the common view of the leader as a hero. My investigation focused on senior leaders as people with personal and social needs, as everyone else.

Were there any surprising findings?

In the interviews that I conducted, I could gather very personal accounts that may give the reader a good sense of what is like to perform a high-ranked leadership role in a corporate context on a daily basis. It was surprising to me the high degree of openness that the leaders showed during the interviews, which seem to contrast with the usual levels of authenticity that they are able to perform among other workers.

What advice would you give to new scholars and incoming researchers in this particular field of study?

Organizations can be very difficult places, even for those that we all deem as super powerful. In consequence, I think we have to look at leadership phenomenon from different perspectives. It is a misleading message to think about top leaders as glamorous or highly desirable roles. Senior leaders have great responsibilities and setting them apart from the rest of people, it doesn’t seem to be helping organizations or leaders themselves. We need more workplaces centered on real people and their fundamental needs.

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The Impact of FSMA on Restaurants

restaurant-2623071_1920[We’re pleased to welcome author Mark Johnson of Michigan State University. He recently published an article in Cornell Hospitality Quarterly entitled “An End User Perspective: The Impact of FSMA on Restaurants,” which is currently free to read for a limited time. Below, Dr. Johnson talks about the background of this research:]

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On January 4, 2011, President Obama signed into law the Food Safety Modernization Act (FSMA or P.L. 111-353). This act may be the most far-reaching food safety legislation since the Food, Drug and Cosmetics Act of 1938 (FDCA). FSMA aims to ensure that the U.S. food supply is safe by shifting the focus of regulation from contamination response to prevention. This legislation imposes administrative costs on the food supply chain in the U.S. by requiring additional record keeping and safety procedures.

The law created record keeping requirements for firms. These requirements are often referred to as one-up-one-down. This nickname emphasizes the fact that the act requires grocers, wholesalers, and food processors to keep track of the immediate parties that they buy food and food products from as well as the parties that they sell food and food products too. This ensures that any contamination problems in the U.S. food supply chain can quickly and efficiently be traced to its source and aid in the rapid response to foodborne illness before it becomes widespread. The Congressional Budget office (August 12, 2010) estimated that FSMA would directly cost taxpayers $1.4 Billion through federal administrative costs. However, attempts to measure the costs imposed on businesses by the legislation were largely ignored until we reported, in a previous study, that expected costs to food processors, wholesalers and grocers was approximately 10% of equity value (Johnson and Lawson 2016). This represented a market value cost of $33 Billion. This previous result encouraged me to consider that others in the food supply chain, end users, such as consumers and restaurants may bear some of these supply chain costs.

The surprising evidence from my current article indicates that restaurants lost approximately 5% of firm value. In this case of restaurants this represents approximately 7.5 billion dollars of lost value. These equity costs represent expected future cash flow and risk effects for the firms studied. These costs, 1.4+33+7.5= $42B, should be weighed against the potential benefits to consumers that the act brings. These benefits may be directly measurable in a potential drop in food borne illness cases over the next 5-10 years as the act is fully implemented.

Previous article:
The Impact of the Food Safety and Modernization Act on Firm Value,” M. Johnson and T. Lawson, Agricultural Finance Review, 2016, 76(2): 233-245.
Current article:
An End User Perspective: The Impact of FSMA on Restaurants,” M. Johnson, Cornell Hospitality Quarterly, Forthcoming

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Kitchen photo attributed to StockSnap. (CC)

Psychological Capital for Leader Development

[We’re pleased to welcome authors Thiraput Pitichat of Claremont Graduate University. Pitichat recently published an article in Journal of Leadership & Organizational Studies entitled “Psychological Capital for Leader Development,” which is currently free to read for a limited time. Below, Pitichat speaks on the objectives of this research:]

JLOS_72ppiRGB_powerpointWhat are the mechanisms behind effective leader development processes? Why do some individuals have a tendency to develop as leaders more than the others? This research suggests that organizations should focus on promoting leaders’ valuable resources or capital – Leader development psychological capital (LD PsyCap), which consists of leader development hope, optimism, resilience, and self-efficacy. Two main objectives of this research are:

1.) to validate LD PsyCap construct; 2.) to test our hypotheses on individual and organizational level factors that predict LD PsyCap as well as leader development behaviors as an outcome of LD PsyCap.

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The Bias of Size in Gambling Decisions: Evidence from a Casino Game Hierarchy

backgammon-2488089_1920[We’re pleased to welcome author Lawrence Hoc Nang Fong, Davis Ka Choi Fong, Robin Chark, Peter Man Wai Chui of the University of Macau. They recently published an article in Cornell Hospitality Quarterly entitled “The Bias of Size in Gambling Decisions: Evidence from a Casino Game,” which is currently free to read for a limited time. Below, Dr. Wang reflects on the inspiration for conducting this research:]

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What motivated you to pursue this research?
This study stems from the authors’ observations of Cussec players in casinos. As gamblers strive to predict the outcome based on previous outcome pattern shown on the screen which is attached to the table, is there any other hint they are trying to locate? While the Chinese characters “Big” and “Small” are clearly displayed on the screen, they can be the hint. Our feeling is that gamblers would incline to bet on “Big” as it sounds more positive than “Small” and they may intrinsically link “Big” to win which is the positive outcome in gambling. Given this speculation, we’ve tried to find whether there had been a study about the said phenomenon, but we got nothing. We think this topic deserves documentation in the literature and thus initiated this research.

In what ways is your research innovative, and how do you think it will impact the field?
Cognitive bias has been a popular research agenda for decades. The bias of size, to our best understanding, remains unexamined. We believe that this study opens a new research stream of cognitive bias in gambling. Future research may examine the questions that we raised at the end of the paper:
“Is the bias maintained if the cue is physical size? In the gambling context, will an outcome option with a larger area on the table layout signal a higher chance of winning?”

What is the most important/ influential piece of scholarship you’ve read in the last year?
Peetz and Soliman’s (2016) paper entitled “Big money: The effect of money size on value perceptions and saving motivation” is an importance piece of work that sheds light to our study. They found that a picture of money with larger size was perceived as more valuable. While gambling is an activity overwhelmed by monetary reward, the mental link between “Big” and win (money as reward) is not unreasonable. We felt blessed to discover and read Peetz and Soliman’s paper.

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