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The purpose of this paper is to explore the impact of long-term debt and firm value in the lodging industry. Previous research on capital structure in the lodging industry has been conducted in an attempt to understand what motivates the use of debt. We explore this further by assessing whether or not this debt use translates into increases in firm value. The regression analysis shows that after controlling for size and risk, we find a positive relationship with long-term debt and the value of the firm. Return on assets is negatively related to firm value, but capital expenditures are not.

This paper seeks to accomplish three objectives. First, based on prior research, this paper attempts to infer the value relevance of earnings and equity for firm valuation in the restaurant industry. The second objective is to document the joint information content of earning and equity in firm valuation. Finally, the model tested above is used to evaluate the relevance of capital structure for firm valuation in the static capital structure framework. The empirical results indicate that the incremental R2 associated with earnings was found to be generally less than the incremental R2 associated with equity. The adjusted R2 of the model that included both earnings and equity ranged from 0.54 to 0.77. The results suggest that the addition of capital structure variables have no incremental explanatory power in explaining the market value of firm, in the presence of earnings and equity.