Risk Determinants of China's Hotel Industry

Abstract

This study examines the risk determinants of China's hotel industry. The risks under consideration are systematic risk (beta), unsystematic risk and total risk. The determinants are debt leverage, size, liquidity, operating efficiency, profitability, growth opportunity and state ownership. Given the distinctive features of its stock markets and its rapidly growing tourism industry, China offers a good case study for this research. Moreover, the rapid expansion of the domestic and international tourism markets in China will create a huge demand for hotels and hospitality services; risk management will consequently be a critical task for hotel executives and investors in China. Thus, a good understanding of risk determinants of the Chinese hotel industry will provide valuable information that will allow both local and foreign hotel business managers and investors to adopt wise investment strategies. Panel regression test results show that debt leverage, size and state ownership are three critical risk determinants of China's hotel industry. Specifically, high debt leverage and state ownership significantly raise all three types of risk for Chinese hotels, whereas large hotels substantially reduce their systematic and total risks.