Evaluating the Impact of Geopolitical Risk on the Financial Distress of Indian Hospitality Firms

The study investigates the effect of geopolitical risk (GPR) on the financial distress of tourism & hospitality firms in India. Using two-step GMM, this study evaluates the impact of GPR, GPR Threat, GPR Action and GPR India on financial distress using Altman score for emerging markets as proxy for financial distress. Further, robustness is checked using Żmijewski score and financial distress ratio as proxies for financial distress. The study is extended by examining the impact of GPR specifically on firm life cycle (age) and firm size and on private and public firms. Our empirical investigation demonstrates that all measures of geopolitical risk increase the chances of financial distress of hospitality firms and our findings are robust to alternative measures of financial distress. By considering GPR as an alternate measure of uncertainty in the hospitality industry, this study contributes to the emerging literature on the factors influencing financial distress of hospitality firms. The study also identifies three accounting measures for proxies of financial distress. Policymakers, regulators and management can pre-empt the impact of uncertain external factors by formulating suitable plans and measures as also for post recovery measures to safeguard firms against bankruptcy. Firms can plan their financing decisions and cash management proactively to reduce financial risk.