Ming-Hsiang Chen

Tourism expansion and economic development: The case of Taiwan

Abstract This study examines the causal relationship between tourism expansion and economic development in Taiwan. A Granger causality test is performed following the cointegration approach to reveal the direction of causality between economic growth and tourism expansion. Test results indicate a long-run equilibrium relationship and further a bi-directional causality between the two factors. In other words, in Taiwan, tourism and economic development reinforce each other. A discussion follows and managerial implications are identified based on the empirical findings.

The impact of macroeconomic and non-macroeconomic forces on hotel stock returns.

Abstract This study aimed to examine the relationship between macroeconomic and non-macroeconomic variables and hotel stock returns using hotel companies listed on the Taiwan Stock Exchange. The regression analysis indicated that among the macroeconomic variables (i.e., money supply, the growth rate of industrial production, expected inflation, the change of unemployment rate, and the yield spread), only money supply and the unemployment rate significantly explained the movement of hotel stock returns. On the other hand, all non-macroeconomic forces selected (i.e., presidential elections, the 921 earthquake, the 2003 Iraqi war, the outbreak of SARS, sports mega-events, the Asian financial crisis, and the 911 terrorist attacks) had significant influences on the hotel stock returns. The empirical results of this study may be used as valuable information for local and global stock investors who seek an investment opportunity in the hospitality industry.

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

Abstract 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, Δ GDP ) and tourism growth (growth rate of total foreign tourist arrivals, Δ TA ) on the corporate performance of tourist hotels are then examined via panel regression tests. Test results show that both Δ GDP and Δ TA are significant explanatory factors of OPR, but only Δ TA can strongly explain ROA and ROE. However, neither Δ GDP nor Δ TA have a significant influence on hotel stock performance. Further, the economic factor ( Δ GDP ) is slightly more crucial than the industry factor ( Δ TA ) 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.

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

Abstract 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 ( Δ TA ) 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 Δ TA 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 the SARS outbreak on Taiwanese hotel stock performance: An event-study approach

Abstract The severe acute respiratory syndrome (SARS) outbreak in 2003 weakened the Taiwanese economy. The tourism industry suffered the most, experiencing the highest stock price decline (approximately 29 percent) within a month of the SARS outbreak. This research examined the effect of the SARS epidemic on Taiwanese hotel stock price movements using an event-study approach. Seven publicly traded hotel companies experienced steep declines in earnings and stock price during the SARS outbreak period. On and after the day of the SARS outbreak, Taiwanese hotel stocks showed significantly negative cumulative mean abnormal returns, indicating a significant impact of the SARS outbreak on hotel stock performance. Empirical findings could be used to prepare businesses for the similar epidemics, such as a deadly bird-flu epidemic.

Interactions between business conditions and financial performance of tourism firms: Evidence from China and Taiwan

Abstract This study contributes to the fields of hospitality and tourism by examining interactions between business conditions and financial performance of tourism firms in both China and Taiwan. We investigate whether the improvement of business conditions enhances financial performance of tourism firms and whether financial success of tourism firms matters to business development. In general, cointegration test results support a long-run equilibrium relationship between the two variables, business conditions and financial performance of tourism firms, and Granger causality test results show that these two factors reinforce each other in both China and Taiwan. This study therefore documents significant contributions of financial success of tourism firms to business development and strengthening of financial performance of tourism firms by business conditions. Some managerial implications are also discussed.

The response of hotel performance to international tourism development and crisis events

Abstract This study uses panel regression tests to examine the response of hotel performance to international tourism development and crisis events in Taiwan. Hotel performance measures are revenue (revenue per available room and occupancy rate), profitability (return on assets and return on equity) and stock performance. The crises were the earthquake on September 21, 1999 (the 9/21 earthquake), the terrorist attacks of September 11, 2001 in the US (the 9/11 terrorist attacks) and the outbreak of Severe Acute Respiratory Syndrome on April 22, 2003 (the SARS outbreak). This study makes four major contributions. First, test results confirm that international tourism development (ITD), proxied by the growth of total inbound tourist arrivals, has a more direct influence on hotel sales and profitability than it does on hotel stock performance. Second, this study identifies that the absence of a strong tie between ITD and hotel stock returns that was found in previous studies is due to the time-varying discount rate caused by investors’ changing expectations for the prospect of future cash flows from holding hotel stocks. Third, this study finds new evidence that while the poor performance of hotel stocks caused by the 9/21 earthquake and the 9/11 terrorist attacks was attributed to the loss of hotel sales revenue, the adverse effect of the SARS outbreak on hotel stock returns is attributed not only to decreased hotel sales revenue but also to the increased discount rate. Lastly, this study is the first to investigate whether the response of hotel stock returns to ITD depends on the state of economy and concludes that the response of hotel stock performance to ITD in business cycle contraction is statistically different from that in business cycle expansion. Further, although the influence of ITD on hotel stock performance is still irrelevant during expansion periods, ITD can significantly enhance hotel stock returns during contraction periods.

Risk and return: CAPM and CCAPM

Abstract Can consumption growth risk (or consumption beta) serve a better measure of risk than market beta? This paper answers this question by testing and comparing the performance of the traditional Capital Asset Pricing Model (CAPM) and consumption-based CAPM (CCAPM) across seven financial market sub-sectors in the emerging Taiwan stock market. The empirical performance of the CAPM is encouraging. The relationship between stock returns and beta is statistically significant and the coefficient of determination of the regression is high across all of seven industry sub-sectors. In comparison, the CCAPM fails to explain the Taiwan stock market although the consumption beta should offer a better measure of systematic risk theoretically.

Financial portfolio approach to optimal tourist market mixes

Abstract This study applied a financial portfolio theory to estimate optimal market mixes to minimize the instability of inbound tourist market demand. An empirical analysis was applied to inbound tourists to Taiwan. The results shed light on diversification in tourism market and offer tourism authorities and policy-makers explicit guidelines for risk management in the destination planning process. Specifically, using optimal mixes with various return/risk options can facilitate a more stable pattern of arrivals from foreign countries. To achieve the Doubling Tourist Arrivals Plan, introduced by the Taiwanese government in 2002, the tourism authorities should take the high-return/high-risk option and shift available resources to Japan. More policy implications are provided to guide tourism authorities and policy makers.

The impact of insider managerial ownership on corporate performance of Taiwanese tourist hotels.

Abstract This study examines the impact of insider managerial ownership on financial performance of publicly traded tourist hotels in Taiwan. Insider managerial shareholding (IMS) includes two different classes of owners: managers and directors (i.e., managers’ shareholding [MAS] plus directors’ shareholding [DIRS]). The indicators of financial performance under consideration are return on assets (ROA), return on equity (ROE), stock return (SR), and Tobins Q. In addition to analyzing total insider managerial ownership (IMS), the study splits IMS into two components (MAS and DIRS) and examines each of them, separately. Subsequently, panel regression tests examine the effects of IMS, MAS, and DIRS on financial performance of Taiwanese tourist hotels. Test results suggest that IMS explains ROA, ROE and Tobins Q, but not SR. Further, compared to MAS, DIRS has a more significant impact on hotel performance. Specifically, an inverted U-shape represents the effects of IMS and DIRS on hotel performance (ROA, ROE and Tobins Q), indicating that both IMS and DIRS have a significantly positive impact on hotel performance up to an optimal point (supporting the convergence-of-interests hypothesis). Further, when IMS and DIRS are greater than their corresponding optimal points, these two factors can significantly deteriorate hotel performance (supporting the entrenchment hypothesis).