Unraveling the Financial Impact of COVID-19 on the Tourism Industry through a Difference-In-Difference Analysis

Abstract

The COVID-19 pandemic has had a significant and enduring effect on the tourism industry, specifically impacting travel agencies. To respond effectively, it is essential to comprehend the financial repercussions and challenges that these agencies confront. This study seeks to address existing gaps in knowledge by conducting a comprehensive examination of the tourism industry's financial performance in the post-COVID-19 era. Our methodology utilizes a Difference-In-Difference (D-I-D) approach, considering multiple investigations to establish a causal connection between the pandemic and the financial stability of tourism service providers. We analyse changes in the overall financial health of the tourism industry relative to other sectors both before and after the COVID-19 outbreak using Altman Z scores. Furthermore, we assess accounting harmonization across diverse jurisdictions and financial frameworks (IFRS, US GAAP, Czech GAAP, German HGB). Data is sourced from 11 multinational corporations in the tourism sector, supplemented with financial data from sectors such as Automotive, Manufacturing, Food and beverage, and Real Estate. Our empirical findings indicate that non-tourism entities experienced a 19% lower likelihood of bankruptcy post-COVID-19. This finding underscores the uniqueness of the tourism industry's challenges during the pandemic. In addition to these findings, we provide practical recommendations designed to assist companies in the tourism industry as they navigate the recovery phase following the pandemic. These insights are pivotal in enabling the industry to build resilient strategies and ensure its sustainability in a post-pandemic landscape.