Crisis, firm characteristics and stock performance: evidence from Hospitality and Tourism sector

ABSTRACT

This study investigates the critical firm-level strengths and weaknesses that explain cross-sectional variations in abnormal stock returns of Hospitality and Tourism (HT) firms during different phases of a crisis. We used the event study and multivariate regression framework for analysing the Indian HT firms’ data around the COVID-19 crisis. While reporting a significant negative influence of COVID-19, we identified the early crisis, market crash and continuation of the crisis periods. Furthermore, we observe that during the early-crisis period, business diversity, financial stability and board diversity improved HT firms’ strength to withstand the risk, while business group affiliation was of little help. During the market crash and continuation of the crisis phase, better capital intensity and financial stability proved helpful. The managers of HT firms can take cues from this study to understand firm-level characteristics that provide resilience to their firms’ value in managing different phases of the crisis.

KEYWORDS:

• Event study
• determinants of abnormal stock return
• crisis
• Hospitality and Tourism
• risk
• India

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports/ (accessed 23 July 2020).

2 India's COVID-19 tally was 1,337,021 cases 24 July 2020, with daily additions of over 40,000. https://www.coronatracker.com/country/india/

3 Abnormal stock return is calculated by subtracting actual return (in the aftermath of the event) from the predicted expected return (in the absence of the event).

4 As per the 2018 data.

5 www.ibef.org.

6 MM is the popular normal returns model used in ESM in the HT literature (e.g., Gim & Jang, 2020; Kim et al., 2020).

7 Sensex is one the oldest and widely followed equity index in the Indian market - Bombay Stock Exchange (BSE).

8 Mostly, the event announcement happened during off-market hours and thus event days [0, 0] are not reported.

9 Daily average of the individual CARs in each event window.

10 Sensex, Nifty suffer biggest one-day fall amid global sell-off (https://www.thehindubusinessline.com/markets/stock-markets/stock-market-updates-for-march-12-2020/article31046636.ece), Dow tanks 2300 in worst day since Black Monday (https://www.cnbc.com/2020/03/12/stock-market-today-live.html); Brazil markets slammed as coronavirus goes 'pandemic', stocks fall 8.5% (https://www.reuters.com/article/us-brazil-markets/brazil-markets-slammed-as-coronavirus-goes-pandemic-stocks-fall-85-idUSKBN20Y39Q); accessed on 25 October 2020.

11 Based on suggestions from the works of Chen et al. (2009) on the impact of disease outbreaks on stock markets returns.

12 Market Research And Statistics report 2020, Ministry of Tourism (Government of India), https://tourism.gov.in/market-research-and-statistics, accessed on 24 July 2020; Tourism and Hospitality Industry in India report 2020 by IBEF (https://www.ibef.org/industry/tourism-hospitality-india.aspx) accessed on 24 July 2020.

13 https://yourstory.com/herstory/2020/04/coronavirus-women-led-countries-flattened-curve. Accessed on 14 October 2020.

14 Present value of all future cash flows.

Additional information

Notes on contributors

Mohammad Shameem Jawed

Mohammad Shameem Jawed is working as an Assistant Professor in IIM Visakhapatnam, India. He is a Fellow (Finance & Accounting Area) from IIM Indore, India. His teaching and research interests lie in the fields of Financial Analytics, Corporate Finance, Capital Market Regulation & Governance, Market Liquidity, Equity & Start-up Financing, Cost Management and Tourism Management.

Archit Vinod Tapar

Archit Vinod Tapar is a faculty in the Marketing & Strategy area at Indian Institute of Management Rohtak, India. His research and teaching interest areas include Brand Management, Tourism Marketing, B2B Marketing, Sports Marketing, Experimental Research Design, and Online Retailing. He has published and presented his work in journals of international repute and conferences worldwide.

Amol S. Dhaigude

Amol S. Dhaigude is working as Associate Professor in the Operations Management and Decision Science area at T A Pai Management Institute Manipal, India. He is Fellow of Indian Institute of Management Indore (IIM I), India. He is also awardee of Junior Research Fellowship. He is actively engaged in research in supply chain management, Service operations management and Tourism management. He is profound case-writer and teacher. He has published papers in reputed international journals and cases in Ivey publication.