Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

 
2007 Annual International CHRIE Conference & Exposition 
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CONCLUSIONS 
In summary, internationalization does not directly affect profitability given the presence of financial 
leverage, which has an inverted U-shaped relationship with profitability. The influence of internationalization on 
profitability is only indirectly through leverage decisions. The practical implication is that controlling financial risk 
by adjusting leverage is a more direct and efficient way than controlling business hedging through 
internationalization to achieve better profitability. However, financial decisions should be made in conjunction with 
strategic considerations because strategies such as internationalization still indirectly affect profitability through 
moderating leverage’s profitability impact. The data shows that hotels managers might have already made decisions 
in such fashion since endogeneity between leverage and internationalization is evident. Another important finding of 
this study is that the relationship between leverage and profitability are curvilinear, an inverted U shaped one to be 
specific. This indicates that there is a limit of improving profitability by controlling financial leverage. Pushing 
financial leverage over optimal level could incur far more costs than benefits.
The finding that international hotels have higher earnings volatility than domestic hotels is contrary to the 
co-insurance effect suggested by Lewellen (1971). Such contradiction could result from the increased exposure to 
foreign exchange or political risks as suggested by Singh and Nejadmalayeri (2004). This inconsistency between 
theory and empirical evidence awaits further investigation. It could be conducted by breaking down the risks 
associated with internationalization and examining the relationships between them. Furthermore, the understanding 
on the relationships between internationalization, leverage, and profitability can be further enhanced by examining 
these relationships from risk perspective.