The Value Effects of Changes in Leverage: Evidence From the Travel, Hospitality, and Leisure Industry

It is a well-established fact that the travel, hospitality, and leisure industry is heavily reliant on external financing to fund their fixed assets component. Thus, firms may increase or decrease their debt levels depending on their financing needs. We examine the association between changes in leverage and economic performance of a firm and contend that changes in leverage contain information about the performance of firms and hence are value relevant. Using a sample of 164 listed US firms, we observe that change s in leverage are indeed value relevant. Additionally, given that the level of capital intensity varies significantly within the various subsector groups in the industry, we also investigate the value effects of changes in leverage in the sub sectors.