COVID-19 Shock, Financial Flexibility, and Hotels' Performance Nexus

Area of Science:

• Business & Economics
• Financial Management
• Hospitality Management

Background:

• The COVID-19 pandemic significantly impacted the global hospitality sector.
• Understanding financial flexibility's role in firm performance is critical for industry resilience.
• Taiwan's hotel firms faced unique challenges during the pandemic.

Purpose of the Study:

• To investigate the relationship between financial flexibility and firm performance in Taiwan's listed hotel firms.
• To analyze the impact of financial flexibility on different firm types (asset-light vs. asset-heavy) during the COVID-19 shock.
• To provide insights for optimizing financial flexibility strategies for long-term sustainability.

Main Methods:

• Utilized quantile regression (QR) methods for data analysis.
• Examined data from Taiwan Stock Exchange listed hotel firms.
• Analyzed data covering the period from Q1 2020 to Q2 2021.

Main Results:

• Identified an inverted U-shaped linkage between financial flexibility and firm performance in the hotel industry.
• Observed an inverted U-shaped effect of financial flexibility on firm performance for asset-light firms (except 50th quantile).
• Found an inverted U-shaped impact of financial flexibility on firm performance for asset-heavy firms in the 10th and 90th quantiles, indicating diminishing marginal returns.

Conclusions:

• A concave non-linear relationship exists between financial flexibility and firm performance, aligning with the law of diminishing marginal returns.
• Firms must strategically manage financial flexibility to balance costs and benefits for optimal performance.
• The Taiwan hotel industry requires continuous adjustment and optimization of financial flexibility strategies for post-pandemic sustainability.