Underlying factors of ups and downs in financial leverage overtime

Abstract

We present new stylized facts on the underlying reasons of US hospitality and tourism firms’ fluctuating levels of financial leverage during the period 1990–2015 using comprehensive micro- and macro-level accounting data overtime. To characterize this puzzling phenomenon, we quantified firm-specific and macroeconomic parameters and a diverse set of leverage proxies at various time frames with various structures. We further took account of the recent economic upheaval in our analyses so that we can compare firms’ leverage behavior as “before” and “after” the major economic turmoil in 2007–2009 periods. The primary themes of our arguments were that firm-specific leverage factors significantly influenced short-term leverage, while long-term leverage was mostly determined by macroeconomic indicators. Beyond that, book leverage was more favorable across firms than market leverage. Last, hospitality and tourism firms substantially extended their borrowing capacities, aggressively grew their leverage ratios, and dramatically increased collateral values leading to lower cost of borrowing due to relaxed lending standards in the aftermath of the recent upheaval. Our article complements previous work by examining whether leverage factors demonstrate discrepancies from the prior findings and by proposing rigorous industry-specific outlook and solution for the financial leverage literature.