Effect of COVID-19 on the Profitability of the Hospitality Industry

Abstract

By utilizing three firm-level factors (financial conditions, corporate strategy, and ownership structure), the current study investigates how the impact of COVID-19 on Indian hospitality sectors' stock returns differs depending on the firms' pre-pandemic characteristics. The results of this study, which used 795 firm-year observations from annual reports and other databases, show that restaurant businesses with past traits of greater size, greater leverage, greater cash flows, lesser ROA, and greater internationalization are more resilient to stock declines in response to COVID-19 than other businesses of a similar nature. Conversely, there was no discernible moderating influence of dividends, franchising, institutional ownership, or managerial ownership on the association between COVID-19 and stock returns. By offering insights into the factors that affected India's industrial stock returns during the COVID-19 shock, this paper illuminates its research issue. The factors and methodology utilized in the current study can be applied in subsequent studies to deepen our understanding of the problem. One of the segments of the economy that is most adversely affected by COVID-19. The ability to contain the pandemic and the macroeconomic effectiveness of the policies implemented by public institutions to promote overall economic recovery are both essential to its recovery. In this context, industry stakeholders must evaluate both the potential influence of economic policies on the hotel sector as well as the direct economic impact of the COVID-19 pandemic's evolution. The COVID-19 pandemic is thought to have had a particularly large impact on the hotel sector, and the uncertainty around how long the pandemic will last makes it difficult to predict how quickly things will turn around. In this regard, the goal of this exploratory study is to give insight into how prepared the hospitality industry is for COVID-19 risk, as motivated by their persistence and financial slack holdings. The empirical results support the notion that their risk readiness should be rated as having a low degree of financial slack. Most of the analyzed hospitality industry had little or no financial slack, and they had recently used up their financial slack resources. As a result, it is uncertain if the hospitality industry would be able to withstand the financial issues that resulted from the COVID-19 epidemic. We come to conclusions on the required system intervention design in light of this evidence that could help the hospitality industry avoid bankruptcy.