The Impact of the Financial Crisis of 2007 to 09 on the US Tourism Industry and Firm Performance

Abstract

An empirical examination of the effect of the 2007 to 2009 financial crisis on the US tourism industry using equity price returns and firm performance ratios for 30 US tourism firms is undertaken in three parts. The joint test of financial market contagion proposed by Fry-McKibbin, Hsiao and Martin (2017) is applied to show that high frequency aggregate US equity market shocks of the financial crisis have a significant impact on US tourism industry returns. Construction of a crisis severity index shows that the peak of the crisis is concurrent with the collapse of Lehman Brothers in September 2008 where more than 80% of the US tourism firms are affected by more than expected by the crisis. Relating the probability of crisis transmission to fundamentals by estimating a logit model of the ffect of the firm specific indicators of profitability, liquidity and leverage shows that it is the liquidity and leverage ratios that correlate most with being affected by contagion. The findings o¤er practical value to tourism firms to monitor and control their performance measures in preparation for future economic downturns.