This paper examines the cross-sectional distribution of equity returns for service-oriented firms in the hospitality sector, focusing on the role of trading on equity (leverage) in their capital structures. Fama-MacBeth regressions were applied across four sub-industry portfolios sorted by book-to-market equity (BEit/MEit) to assess the relationship between return volatility and a range of leverage proxies across different time periods and capital structure configurations. Additionally, the study ranks the most and least volatile sub-sector portfolios within the sample. Some portfolios exhibited deviations from the predictions of pecking order theory, while others aligned with theoretical expectations regarding levered equity returns and financial leverage. Overall, the analysis reveals that BEit/MEit firms experience substantial return volatility across most portfolio sorts, and that, on average, higher levels of short-term leverage are associated with an elevated risk–return tradeoff.
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