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An Examination of the Determinants of Hotel Reits' Unsystematic Risk

University of Nevada-Las Vegas

Hyunjoon Kim

University of Hawai'i at Manoa

This article follows up on a previous study that examined the systematic risk of hotel real estate investment trusts (REITs). Although the previous study found that the predominant component of hotel REITs' risk was the unsystematic risk, it analyzed only the determinants of the systematic risk. This article discusses the relevance of hotel REITs' unsystematic risk in firm valuation and investigates financial variables that affect the unsystematic risk. Using backward selection regression method, we found that hotel REITs' unsystematic risk was associated positively with debt and dividend payout but negatively with capitalization. The findings suggest that large hotel REIT firms paying lower dividends and using less debt are likely to have an advantage in firm valuation.

Key Words: hotel REITs • systematic risk • unsystematic risk • risk determinants • value

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