Asset-light strategies and stock market reactions to COVID-19’s pandemic announcement: The case of hospitality firms

Cédric Poretti and Cindy Yoonjoung Heo
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Cédric Poretti: HES-SO/University of Applied Sciences and Arts Western Switzerland, Switzerland
Cindy Yoonjoung Heo: HES-SO/University of Applied Sciences and Arts Western Switzerland, Switzerland

Tourism Economics, 2022, vol. 28, issue 6, 1692-1701

Abstract: This research note investigates the stock market reactions of international hospitality firms to COVID-19’s pandemic announcement by the World Health Organization. In line with the behavioral finance literature, the findings indicate that, in the short term, investors overestimated the risks underlying asset-heavy firms because of information uncertainty. Firms pursuing an asset-light (AL) strategy are associated to significantly less negative cumulative abnormal returns in the 4 days following the announcement, especially firms following an AL strategy that reduces significantly the operating leverage. However, this difference vanishes after 5 trading days, meaning that investors revised their expectations. This research note suggests that the cost structure of AL firms matters in reducing information uncertainty and sheds light on the consequences of the COVID-19 crisis on the hospitality industry. It also provides useful information to board members, financial analysts, and companies’ top managers when evaluating whether and how to pursue an AL strategy, and the potential consequences of it.

Keywords: asset-light; COVID-19; cumulative abnormal returns; event study; hospitality industry; operating leverage (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:28:y:2022:i:6:p:1692-1701

DOI: 10.1177/13548166211005198

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