The Microeconomics of Fixed Costs and the Impact of Operating Leverage on US Lodging Stocks

Sammanfattning: In this paper, we developed on the topic of operating leverage and used it to analyze the hotel industry. Microeconomics provided the general framework to understand firm behavior, especially with respect to its cost-structure and how it evolves over time. We found a significant relationship between the estimated proxy and the conventional fixed and variable approach to estimate the degree of operating leverage (DOL) for hotels. We developed our analysis into assessing the impact of the DOL on stock returns; covering a sample of 10 US listed lodging firms. From a corrected dynamic Least Square Dummy Variable model, the statistical significance of our estimates and the robustness of the model allowed us to conclude that the relationship between the stock returns and operating leverage exists in the selected sample of US firms in the hotel industry. Using three approaches to address a bias that leads to inconsistent estimators, we obtained estimates that greatly improved on previous studies and led to gains in estimate consistency.