Terrorism and its Impact on Financial Performance: A Case of Tourism Industry

Abstract

Tourism has emerged as an instrument for generating substantial economic benefits to both host countries and tourists’ home countries. It is an especially important industry for the developing economies. The main benefits of tourism to a country are foreign exchange earnings, tax revenues, and business opportunities for entrepreneurs, and employment generation for workers, poverty alleviation and sustainable human development in the industry. But the free flow of information, communication, information technology and so forth has posed an open challenge to the tourism industry, since the terrorist groups are conducting their activities by seeking benefits from these developments, and hence affecting the countries globally. The fear of terrorism is growing large in our daily life. There are a number of supporting case studies where these terrorist attacks have caused a number of problems for tourist activity in a country including India. The present paper evaluates the impact of financial performance on the tourism industry in India. Various studies have been done to measure the magnitude of the effect of an unanticipated event. The present paper studies the impact of an unanticipated event i.e., the 2008 Mumbai attacks (sometimes referred to as 26/11) on the financial performance of tourism industry. The study examines the effect of this unanticipated event on the balance sheets of the India Tourism Development Corporation (ITDC) which is the only Public Sector Undertaking of the Ministry of Tourism. To study the impact, the financial statements of ITDC from the financial year March 2006 to March 2010 is evaluated. The key figures such as liquidity ratios, leverage ratios, per share ratios, profitability ratios, and direct foreign exchange earnings are evaluated. The Paired t-test is applied to check the impact on the financial performance of the tourism department before and after the attack. Impact of terror attack is visible on the financial performance of the tourism industry. The decrease in the performance clearly indicates the impact of terrorism in the tourism sector. Keywords: financial performance, terrorism, tourism, Paired T-test.

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