The Impact of Authorization of the Travel Promotion Act on Hotel Firm Stock Returns

Abstract

On March 4, 2010, President Obama signed into law the Travel Promotion Act of 2010 (TPA), which established a public–private corporation to promote travel to the United States. Results from a survey of twenty financial analysts who follow the hospitality industry reveal that twelve of them considered TPA when analyzing hotel firms’ value at the time the law was signed. Two others had already revised their value assessment in 2009 when they first heard that the act was being considered. These analysts all believed that TPA would have a positive impact on firms in the hotel industry. Consistent with the analysts’ expectations, abnormal stock market returns indicate that publicly traded hotel firm stock prices increased by approximately 1.93 percent, on average, at the time of the TPA signing. Results of cross-sectional analyses of the abnormal stock returns indicate that hotel firms with a larger proportion of rooms in the upper chain-scale tier benefited more from TPA, and real estate investment trusts (REITs) would experience greater gains from TPA than C corps. Finally, we find that firms with a substantial portion of their rooms outside North America gained no more, nor less, than other hotel firms did from the TPA.