Economic Growth, Industry Expansion and Performance of Sri Lankan Corporate Hotels

Abstract

The hotel industry is the core of the tourism industry since it is essential for all other tourism services to be provided. However, the hotel industry is increasingly facing various challenges due to the uncertainty and instability in the business environment. The purpose of this study, therefore, is to evaluate the impact of economic growth and tourism expansion on the performance of the hotel industry in Sri Lankan. To reach the aforementioned research objective, listed hotel corporations were selected and data pertaining to their financial performance, through annual reports, was abstracted from 2012 to 2018. In order to ascertain sustainable performance, we systematically combined six individual financial performance measures with the use of entropy-based TOPSIS into one comprehensive measure. Findings which emerge from the study suggest that the macroeconomic factors alone can account for 6% variance in return on assets and 2% variation in return on equity. However, these macroeconomic factors are key drivers of the overall financial performance that can explain 30% variation in hotels’ overall performance. More specifically, growth in tourist arrivals and inflation found to have a positive and significant impact on the corporate hotels performance, while, the interest rate affects significantly negatively. Research findings with regard to the impact of GDP growth on hotels’ performance remain inconclusive.