Tourism expansion and corporate earnings in the tourism industry

Abstract

Although tourism expansion is theoretically assumed to have a direct influence on the tourism industry, previous studies have not found any significant connection between tourism expansion and tourism firms’ stock performance. This study argues that tourism expansion would have a more direct impact on tourism firms’ earnings than on their stock performance. Accordingly, whether tourism expansion can create significant growth in corporate earnings for tourism firms is tested on the basis of a Granger non-causality procedure using a four-variable vector autoregression model. Test results support the assumption that tourism expansion could significantly improve the corporate earnings of tourism companies. The analyses of the generalized impulse response function and variance decomposition further indicate the critical role of tourism expansion in explaining increases in the tourism industry's corporate earnings. Policy implications are provided to guide the government tourism authorities.

Keywords:

• tourism expansion
• earnings
• causality
• tourism industry

Acknowledgements

We wish to thank the National Science Council of Taiwan (Grant No.: NSC 95-2415-H-194-011) for the financial support. Valuable suggestions from the editor, Professor Gary P. Akehurst, and two anonymous referees are also gratefully acknowledged.