The Relationship Between Dividend Yields and Common Equity Returns for Hotel and Lodging Firms in the United Kingdom, the United States, and Japan: Some Empirical Evidence

Abstract

Dividend policies of hotel and lodging firms are often constrained by various restrictive debt covenants. Such restrictions are imposed by institutional lenders as protective measures, especially when the financial and operating leverage trends in a specific industry group are very high. Given such restrictions and constrained dividend payouts, the question of “dividend relevance” has special importance for firms in the hotel and lodging industry. This research is a cross-sectional analysis of the dividend/return relationship for hotel and lodging firms in three major G7 markets, namely, the United Kingdom, the United States, and Japan. Although empirical findings suggest a positive nonlinear dividend/return relationship for hotel and lodging firms in these countries, they also reveal the presence of distinct country-specific effects in the above relationship. As such, the nature of the relationship between dividend yields and common equity returns for hotel and lodging firms is better understood from a global perspective.