An investigation of the mean reversion of hospitality stock prices towards their fundamental values: The case of Taiwan

This paper tested the mean reversion behavior of stock prices in the hospitality and other industry sectors towards their fundamental values, namely earnings per share (EPS) and dividend per share (DPS). Cointegration test results showed that DPS is not a good proxy of fundamental values of stock prices in all sectors, while EPS can serve as a good proxy of fundamental values of stock prices only in the hospitality and construction sectors. Further, although hospitality stock prices have diverged away from their fundamental values from time to time, there exists an error correction mechanism in the market, which adjusts hospitality stock prices to return to their fundamental values. We also found that hospitality stock prices driven by their EPS are due to less noise trading and small size in the hospitality industry. Lastly, empirical findings suggest that hospitality stock investors should pay more attention to the underlying performance of hospitality stocks in terms of their earnings per share.     

Asymmetric response of hospitality stock prices to Fed policy actions

This paper examines asymmetric response of hospitality stock prices to Fed monetary policy actions in bull and bear markets. Empirical examinations comprise two critical steps. First, following Kuttner (2001), this study uses the federal funds target rate surprise as an appropriate identification of Fed monetary policy action. Second, by using a Markov-switching model of stock returns, this study explicitly identifies bull and bear markets. Empirical test results based on an event study framework reveal that the responses of airline, gambling, hotel and travel and leisure index returns to monetary policy surprises vary greatly in bear and bull markets. The response of airline, gambling and hotel index returns is substantially greater and more statistically significant in bear than in bull markets. Moreover, the significant impact of monetary policy surprises on airline, gambling and hotel index returns exists only in bear markets. While travel and leisure index return reacts strongly to federal funds target rate surprises in both bear and bull markets, the response of travel and leisure index return is significantly greater in bear markets.     

State dependence in the influence of monetary policy regime shifts on hospitality index returns

Previous research studies reveal that changes in monetary policy can significantly affect hospitality stock returns. This paper makes another contribution by showing that the impact of shifts in the Fed monetary policy regime on US hospitality index returns varies to a great extent in the different stages of business cycle and under different credit market conditions. Shifts in the Fed monetary policy regime are measured by directional changes in the discount rate (DR) and directional changes in the federal funds rate (FFR). In particular, the significant influence of monetary policy regime shifts on hospitality index returns depends on the state of economy. The significant influence of DR exists only during periods of business cycle contraction. In addition, although US hospitality index returns respond significantly to FFR under both business cycle expansion and contraction, the size of the response is substantially larger and more statistically significant during periods of business cycle contraction. Finally, the impact of both DR and FFR on hospitality index returns depends on the credit market conditions, especially when the credit market is tight.     

Are hospitality industry IPO stock returns predictable?

We examine the post-IPO excess stock returns of hospitality firms from 1996 to 2012 and find underperformance relative to the market on average. However, there are large differences in returns and some firms significantly outperform. We demonstrate that a substantial portion of this variation can be reliably predicted by utilising pre-IPO financial measures such as firm size, free cash flows, discretionary accruals, and Altman's Z. Our findings are potentially valuable to prospective hospitality IPO investors in selecting which stocks to buy and to hospitality firm managers in setting IPO issue prices.     

Understanding the impact of changes in consumer confidence on hotel stock performance in Taiwan

This study contributes to the hospitality literature by providing a comprehensive investigation of the effects of changes in consumer confidence (ΔCCI) in Taiwan on hotel stock performance, including hotel sales growth (ΔSALES), hotel stock returns (HSR) and the perceived riskiness of stock cash flows from holding hotel stocks (proxied by the risk of hotel stock returns (RISK)). Empirical test results reveal that ΔCCI can significantly benefit HSR by stimulating hotel sales growth and by lowering the perceived riskiness of hotel stock cash flows. Quantile regression tests demonstrate that among six economic variables, only ΔCCI can consistently and significantly affect HSR, ΔSALES and RISK at all different quantiles. Changes in consumer confidence are also found to be significant in helping the prediction of HSR, ΔSALES and RISK. Specifically, an increase in ΔCCI can cause an increase in HSR and ΔSALES and a decrease in RISK.     

Effect of consumer sentiment on hospitality expenditures and stock returns

Given the importance of consumers to the U.S. economy and especially to the hospitality industry, we explore how consumer sentiment (i.e. confidence in the economy) affects consumption expenditures and stock returns in the hospitality industry.We find that not only does consumer sentiment partly predict changes in future consumption expenditures, but changes in consumer sentiment are contemporaneously related to hospitality industry stock returns. More importantly, our results indicate that changes in consumer sentiment can partly predict changes in stock prices of hospitality firms, an indicator of firm performance. The predictive ability of consumer sentiment can thus be useful to managers in business forecasting, planning, and strategizing for profit maximization.     

Investigating the impact of surprise rewards on consumer responses

Adopting an experimental approach, this research compared surprise rewards with membership discount rewards in terms of their impact on customer responses of delight, frustration and satisfaction. In addition, this research examined the circumstances under which surprise rewards should be offered in order to yield maximum benefits for hospitality firms. In particular, the study examined how the customer's cumulative satisfaction (high vs. low) influences the effectiveness of surprise rewards (vs. membership discount rewards) in increasing customer delight and satisfaction and decreasing customer frustration. Consistent with the theoretical predictions, results show that surprise rewards are more effective than membership discount rewards for enhancing customer delight and satisfaction and attenuating customer frustration, particularly when the customer's cumulative satisfaction is low. These findings have important implications for the hospitality industry. Hospitality managers and marketers could use this information to design effective loyalty reward programs.     

Intangible asset value of employee satisfaction in high-contact services

In this study, we utilize the employee online review data from Glassdoor to examine whether stock market capitalizes the intangible asset value of employee satisfaction for high-contact service firms. We hypothesize that in the hospitality and tourism industry, employee satisfaction can efficiently motivate employees to deliver high-quality service and improve the employee retention, thereby leading to greater shareholder value. Our finding is consistent with this prediction that stock market investors indeed incorporate the intangible value of employee satisfaction into the valuation models. In addition, we find that the value of such intangible asset manifests in firm’s subsequent profitability, resulting in improved return on asset (ROA). We further decompose ROA into profit margin and asset turnover to explore the pathways by which employee satisfaction affects shareholder value. We find that employee satisfaction can improve both profit margin and asset turnover for high-contact service firms. Overall, our study suggests that employee satisfaction can be an important intangible asset that contributes to the service firms’ long-term value.     

The real estate risk of hospitality firms: Examining stock-return sensitivity to property values

The value of a hospitality firm is often believed to be dependent on the market price of the properties they own. However, the core business of a hospitality firm is the production of products and services. Since the real estate assets are depreciated throughout their useful life, short-term covariance of firm value with real estate prices seems implausible. Using a two-factor model, the current study examined the real estate exposure of US hospitality firms through daily stock return data from 2005 to 2009. Results indicate that the majority (88%) of the hospitality firms were exposed to real estate risk at some point during the sample period, while the second-stage analysis of real estate betas suggests that exposure is conditional on the financial status of the hospitality firm. Implications and suggestions for future research are presented with the findings of the study.     

The Determinant of the Hospitality Industry's Unsystematic Risk: A Comparison Between Hotel and Restaurant Firms

ABSTRACT

Unsystematic risk is accepted as an important factor in stock valuation. Despite the importance, little has been done to study the relationship of unsystematic risk to stock values in the hospitality industry. This study attempted to advance the understanding of financial variables that could be related to unsystematic risk of hospitality firms. Regression models were developed for hotel and restaurant firms, using unsystematic risk as the dependent variable and financial variables as independent variables. The major findings of this study indicate: 1) more profitable hospitality companies have less unsystematic risk, 2) reducing reliance on debt financing could reduce unsystematic risk, 3) the positive relationship between operating leverage and unsystematic risk, suggesting that decreasing operating leverage could mitigate the stock price volatility of hospitality firms, and 4) large hotel and restaurant firms have less unsystematic risk than small firms. This study should help management of hospitality firms incorporate effects of shareholder expectations into their operational decision making as an integral part of long-range financial planning.     

Can corporate social responsibility protect firm value during the COVID-19 pandemic?

The novel coronavirus (COVID-19) pandemic has caused a significant decline in the stock market worldwide, and hospitality companies are experiencing serious financial problems. Protecting and preserving firm value is a critical way of helping hospitality companies survive the crisis. The influence of corporate social responsibility (CSR) on firm value has been widely investigated. However, little is known about the stock price movement following CSR activity adoption during an industrial crisis. Using event study and difference-in-difference method, this study reveals that engaging in CSR activities can increase the stock returns and stakeholder attention of hospitality firms during the pandemic. Community-related CSR has a stronger and more immediate effect on stock returns than customer- and employee-related CSR. Results also indicate that hospitality firms that pursue improved stock market performance during a pandemic can invest in CSR to protect communities, customers, and employees for attracting further stakeholder attention.     

The impact of corporate charitable giving on hospitality firm performance: Doing well by doing good?

While corporate charitable giving (CCG) may have a positive or negative effect on corporate performance (based on value enhancement theory and agency cost theory, respectively), CCG could also have no impact at all. This article tests the extent to which CCG can influence corporate performance of Taiwan's publicly traded hospitality companies. The variable of CCG is defined as the ratio of the total value of corporate giving to total sales revenue. The measures of corporate performance are profitability (return on assets and return on equity), stock performance and Tobin's Q. Panel regression test results reveal that CCG can affect all measures of corporate performance except for stock return. In particular, the impact of CCG on return on assets, return on equity and Tobin's Q is an inverted U-shape, implying that an increased CCG can enhance corporate performance, but as the level of CCG reaches its optimal point, an increase in CCG could have a negative influence on corporate performance. Empirical test results can offer valuable managerial insights for the hospitality industry.     

To Ban or not to ban rate parity,that is the question… or not?

Considering the heated debate in the hotel industry about the rate parity clause and the appropriateness of its ban to give rise to rate disparity, this article analyzes the hotel performance that has resulted from the rate parity prohibition established in some European countries, by looking into the market value of the hotels involved. The empirical analysis conducted on a sample of hotel companies trading on the stock exchange in Germany and France shows that the approval of the rate parity ban generates positive abnormal returns. However, an increase in risk is detected. It seems that, while the prospects of greater autonomy to set prices in the hotel industry and stronger competition in the online distribution industry are looked at positively, the hotels will have to deal with a customer’s potential higher perception of price unfairness, less control over its own brand and a greater likelihood of price wars.     

利用资本市场发展旅游产业

在旅游业宏观与中观形势向好的大背景下,旅游业微观层次的效益低下日益凸现,特别是1998年,作为旅游业主体之一的酒店业全面亏损.众多研究结果表明,生产要素难以自由流动和产权制度不合理是导致这一背反状态的最主要因素.本文重点探讨如何利用资本市场功能解决旅游业项目资金筹集、产业结构升级和现代企业制度建立等面临的多重问题,以为解决旅游业的矛盾现状找寻多一点的思路.     

Macro and non-macro explanatory factors of Chinese hotel stock returns

This study investigates the link between macro and non-macro explanatory factors and Chinese hotel stock returns. Macro variables include growth rates of industrial production and imports, discount rates, yield spread and inflation rate. In addition, growth rate of total foreign tourist arrivals (ΔTA) was introduced as another critical macro factor that may affect Chinese hotel stock returns, considering a tremendous growth of tourism in China. Empirical results indicated that the impact of ΔTA was positive, but insignificant. Thus, Chinese hotel stock returns were more sensitive to general macro variables. Non-macro events that could significantly impact Chinese hotel stock returns encompass financial crises, natural disasters, wars, terrorist attacks, political events, and sports mega-events. Discussions and conclusions are provided to guide hospitality investors.     

The impact of changes in household vacation expenditures on the travel and hospitality industries

Two large tourism industries, travel and hospitality, are strongly affected by changes in household demand for vacations. In recent years, rising income and declining prices per unit of quality have led to changes in patterns of household vacation consumption. To understand the impact of these changes on the travel and hospitality industries, we develop a theoretical model distinguishing between travel and on-site expenditures and apply it to Israeli data. We find that under certain circumstances, the changes in income and prices are responsible for a shift toward multiple, short vacations. This trend can be a boon to the travel industry but a disadvantage for the hospitality industry. Both industries are expected to face a rise in the demand for high-quality products.     

The why,how, and what of public policy implications of tourism and hospitality research

We synthesized policy implications of tourism and hospitality research by reviewing 12,269 articles published in 10 leading journals from 2012 to 2021. The most common rationale for policies (i.e., the why) is market failure, while the most typical role of policies (i.e., the how) is to create incentives. In addition, policies are typically hybrid and include suggestions for formal and informal institutional setups (i.e., the what). Because our review revealed that only 114 articles (i.e., 0.93%) included the why, how, and what of actual policies, we offer a theory-based research agenda on policy-making focused on making tourism and hospitality more inclusive and focusing on evolutionary dynamics, providing an understanding of the impact of crises and contemporary solutions, focusing on resilience and institutional complexity, and addressing the actors and time dimension. Our results, combined with those of our suggested research directions, will benefit organizations and society and simultaneously enhance the perceived societal value-added, contributions, and stature of tourism and hospitality research.     

The economy,tourism growth and corporate performance in the Taiwanese hotel industry

This study investigates the impact of economy and tourism growth on the corporate performance of tourist hotels in Taiwan. The indicators of corporate performance under consideration are occupancy rate (OPR), return on assets (ROA), return on equity (ROE), stock return, and the overall financial performance measured by a comprehensive score (a combined measure of asset management, profitability, short-term solvency or liquidity and long-term solvency based on factor analysis). The effects of changes in the state of economy (real GDP   growth rate, ΔGDP$\Delta \mathit{GDP}$) and tourism growth (growth rate of total foreign tourist arrivals, ΔTA$\Delta \mathit{TA}$) on the corporate performance of tourist hotels are then examined via panel regression tests. Test results show that both ΔGDP$\Delta \mathit{GDP}$ and ΔTA$\Delta \mathit{TA}$ are significant explanatory factors of OPR  , but only ΔTA$\Delta \mathit{TA}$ can strongly explain ROA and ROE  . However, neither ΔGDP$\Delta \mathit{GDP}$ nor ΔTA$\Delta \mathit{TA}$ have a significant influence on hotel stock performance. Further, the economic factor (ΔGDP)$\left(\Delta \mathit{GDP}\right)$ is slightly more crucial than the industry factor (ΔTA)$\left(\Delta \mathit{TA}\right)$ in describing the overall financial performance in the Taiwanese hotel industry. Empirical findings offer valuable information for government tourism policymakers and tourist hotel owners and managers.