“This article has been accepted for publication in the Current Issues in Tourism, published by Taylor & Francis.

Russian-Ukraine war and the global tourism sector: A 13-day tale

Dr. Dharen Kumar Pandey a*, and Mr. Rahul Kumar b

a Assistant Professor, P.G. Department of Commerce, Magadh University, Bodh Gaya, Bihar,
India-824234; b Doctoral Fellow in Accounting and Finance, Indian Institute of Management,
Ranchi, Jharkhand, India-834008.

* Corresponding author. Assistant Professor, P.G. Department of Commerce, Magadh

University, Bodh Gaya, Bihar, India-824234. Email: dharenp@gmail.com. Mobile:
8170080042

This version written on 25th March 2022

Biographical notes: Dr. Dharen Kumar Pandey is an Assistant Professor in the P. G. Department of
Commerce, Magadh University, Bodh Gaya, Bihar. He has ten years of industry and teaching
experience. His research interests are financial markets, financial econometrics, market efficiency, etc.
He has published several research papers in various reputed journals, including the International Review
of Economics and Finance, the International Journal of Financial Markets and Derivatives, the Review
of Finance and Banking, the Indian Journal of Commerce. He also holds the post of Honorary Secretary
of the Indian Accounting Association, Patna Branch, and the Member of the Executive Committee,
Indian Accounting Association.

Mr. Rahul Kumar is a Doctoral Fellow in Accounting and Finance at the Indian Institute of
Management, Ranchi. His research interests lie in Corporate Finance, Derivatives, Investment
Management, Corporate Governance, etc.
Impact of the Russian invasion of Ukraine 2022 on the global tourism sector

Using the event study method, we examine the impacts of the Russia-Ukraine war 2022

on the global tourism sector stocks. The findings suggest that the impact is different for

firms in different market sets. The cross-sectional analysis reveals that some country-

and firm-specific variables significantly impact the cumulative abnormal returns.

Keywords: Event study; stock returns; crisis; volatility; travel

Introduction

Geopolitical shocks adversely impact tourism (Bandara, 1997; Hadi et al., 2020; Hailemariam

& Ivanovski, 2021). The global pandemic had already harmed the tourism sector (Fotiadis et

al., 2021; Hall & Cooper, 2021; Pandey & Kumar, 2021). When the tourism sector is

recovering from a shock, nothing could be as devastating as war. The Russian invasion of

Ukraine is undoubtedly a cost to the world tourism economy. The rest of the world is still a

spectator. However, the stock markets have already started reacting to the continuation of the

war. It will be interesting to find out how the global tourism firms react to the Russian invasion.

Although the dispute is between two nations, the rest of the world could not remain unaffected.

It is uncertain how long the war will continue and the alignment of different nations. However,

the stock markets have already started reacting to the war event.

We find (Bandara, 1997), (Demir & Ersan, 2018), (Hadi et al., 2020), (Tkalec & Žilić, 2021),

(Hailemariam & Ivanovski, 2021), and (Hadi et al., 2022) evidencing adverse impacts of civil

war, economic policy uncertainty, terrorist attacks, NATO bombing, geopolitical risk, and

global volatility and uncertainty factors on the tourism sector. Although vast literature is

available evidencing the impact of political unrest on the tourism sector, there is a scarcity of

studies examining the impacts of war events on the global tourism sector. This study is

motivated to examine the global tourism sector stocks' behavior and determine which firm
characteristics protect the market overreaction. We also find if the country's trade-to-GDP ratio

and other country-specific variables affect these impacts.

Data and methods

We follow the Industry Classification Benchmark (ICB) developed by the Financial Times

Stock Exchange (FTSE) to identify our sample firms in the travel and leisure category. Initially,

we found 254 firms globally. However, after filtering the missing data, we include 134 firms

from 31 countries in the final sample. Each country's leading stock exchange index is used as

its benchmark index.

We use the (Brown & Warner, 1985) event study method to calculate the firm's abnormal and

cumulative abnormal returns (CAR) using a 90-day estimation window (t-97 to t-8) and a 13-

day event window (t-7 to t+5), t is the event day (24 February 2022). To estimate the alpha and

beta estimates of the Ordinary Least Squares regression, we regress the estimation period

returns of the sample firms with the leading benchmark index of the nation to which the firm

belongs.

Next, we conduct a cross-section regression to investigate which factors drive the CARs during

the different event windows. We include country-and firm-specific variables as independent

variables in our regression model. We use the 2019 Travel and Tourism Competitiveness Index

(TTCI) (World Economic Forum, 2019), the number of international tourists (IT), trade-to-

GDP (TTG) as in (Sikarwar, 2021), and Exchange rate (ERU) as country-specific variables.

Further, we include firm-specific variables such as size (LNTA) as in (Jawed et al., 2021),

stock volatility (VOL) as in (Pandey & Kumar, 2021), stock liquidity (SLIQ) as in (Jawed et

al., 2021), firm liquidity (FLIQ) as in (Pandey & Kumar, 2021), leverage (TDTA) as in (Jawed

et al., 2021), firm performance (ROA) as in (Pandey & Kumar, 2021), firm's cash holding

(CASH) as in (Rao et al., 2013). We also control the effect of past returns as a standard practice
in finance literature (Chaturvedula et al., 2015). The details of the variables are provided in

Appendix A1. Although we check for the collinearity between the variables, robust standard

errors are used to deal with heteroskedasticity issues in our regression model.

Quantitative analysis

The results of the event study analysis presented in Appendix A.2 reveal that the American and

Asian markets are insignificant on the event day. While the tourism firms in the Americas

experienced a significant positive average abnormal return (AAR) on t-6 and t-4, those from

Asia experienced both significant negative AARs (t-7 and t-2) and significant positive AARs

(t-6, t-4, and t+3). The event day AAR is negative and significant for the entire sample, and

this impact may be attributed to the firms in the Europe, Middle-East & Africa (EMEA) and

the Pacific markets. The global tourism firms are negatively impacted on the event day, but the

next day, they experience significant positive AARs followed by significant negative AARs on

t+2. The event day (24 February 2022) might have been anticipated as a beginning of a global

conflict triggering the panic selling by the investors. However, the bounce-back of the stock

prices the next day indicates that the investors have realized that this is a regional conflict.

Significant negative AARs are noticed on t-3, t, and t+4 in the EMEA market. During the event

window, the Pacific market experienced significant negative AARs (t-2 and t) and significant

positive AARs (t-6, t-4, t+1, and t+5). Although in figure 2, we find the cumulative average

abnormal return (CAAR)-line rising upward in the pre-event period, the post-event period

indicates a balanced up-and-down movement. The AAR and CAAR lines of the different

market sets presented in figure 3 indicate that the cumulative impact is positive on the

American tourism sector and negative on the EMEA tourism sector.

Further, Appendix A.3 presents the significant CARs in different market sets. It is evident that

although both positive and negative CARs are experienced in different market sets,
approximately 14 percent of the sample firms have been significantly impacted in the [0,0]

window. This number of significant CARs rises with the progression of the war (22 percent in

[+1,+3] and 40 percent in [+1,+5] window). This indicates that the cumulative impact of the

event is significant for the sample firms. For more specific conclusions, we analyze the cross-

sectional variations using the firm and country-specific variables to find if some firm and

market inherent factors are also responsible for the different reactions of the sample firms.

The cross-sectional regression results in Appendix A.4 reveal that TTCI scores inversely

impact the CARs in the pre-event window, indicating that firms situated in the countries with

higher TTCI are impacted more. The plausible reason could be that firms of these countries are

affected by institutional selling as a panic situation is created with the exchange of dialects

between Russia and Ukraine. In addition, TTG and ERU have a significant positive impact on

the CARs in the post-event windows, indicating that firms situated in countries with more

dependence on trade and related activities are affected more because of issues related to the

supply chain. In addition, CARs in countries with weaker exchange rates are also affected

because of institutional selling triggered by the invasion.

Moreover, we find that stock price volatility (VOL) significantly positively impacts the CARs

during the event. The relationship signifies that stock returns are higher for the more volatile

stock, as (Duffee, 1995) suggested. In addition, we exhibit that FLIQ and LNTA also impact

the stock returns during the event windows, which is argued in existing tourism-related studies

(Jawed et al., 2021; Pandey & Kumar, 2021). On the event day, the TDTA and ROA of the

firm positively impact the stock returns, indicating that because of the tax shield and trading

on equity, the firm performance increases, which is reflected in return on assets which results

in higher stock returns (Pandey & Kumar, 2021; Jawed et al., 2021).
Further, we do not find any impact of the SLIQ and CASH on the stock returns during the

event. At last, we also find that past returns significantly impact the stock returns in different

windows, supporting the views of (Chaturvedula et al., 2015) that past returns can predict the

stock returns. Robust results presented in Appendix A.5 are similar to those in Appendix A.4.

Conclusions

Using the event study method, we find that the stock returns of the global tourism firms are

negatively impacted on the event day, followed by a significant positive impact on t+1 and a

significant negative impact on t+2. Further, the firms listed in the American market have been

insignificant during the post-event period, although the cumulative effect is present due to the

war's progression. The cumulative negative impact is more on the firms from the EMEA

market. We also evidence that TTCI inversely drives the CARs. While TTG and ERU

positively drive the CARs, the CARs are insignificant to IT. We also find that although size,

volatility, return on assets, firm's liquidity, leverage, and past returns significantly impacts the

CARs in different event windows, cash holdings and stock liquidity do not have significant

impacts.

The findings will empower policymakers and investors in their strategic action to combat the

effects of war events. Some firms reflect positive reactions, the reason being the firm-specific

strengths. We provide the initial impacts of the war. Future studies should consider longer event

windows to capture how the war's progression significantly impacted the global tourism sector.

Further, the rising oil prices call upon the analysis of how the oil-producing and manufacturing

firms are impacted.

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Appendix A.1: Country and firm-specific variables
Independent Variables Abbreviation Descriptions
Country-Specific Variables
Travel and Tourism Competitiveness
TTCI The index is a measurement of the factors that make it attractive to develop business in the travel and tourism
Index
industry of individual countries, published by the World Economic Forum

Tourist Arrival IT Natural Logarithm of the total international passengers in a particular country in 2019, available on the World
Bank website
Trade to GDP Ratio TTG The ratio describes the level of trade with respect to countries' GDP, available on the World Bank website

Exchange Rate ERU It is the ten-day average of the countries exchange rate in terms of US dollar before the event day, available on
International Monetary Fund website
Firm-Specific Variables
Total Assets LNTA Natural Logarithm of the Total Assets
Volatility VOL It is calculated by taking the standard deviation of stock returns 20 days before the event.
Firm Liquidity FLIQ The ratio is estimated by dividing current assets by current liabilities
Stock Liquidity SLIQ It is a natural logarithm of average 20 days stock volume before the event
Financial Leverage TDTA The ratio is estimated by dividing total debt by total assets
Return on Assets ROA The ratio is estimated by dividing net profit by total assets
Cash Holdings CASH Natural Logarithm of the Firm's Cash holdings
Past Returns PAST CARs of the last 20 days before the event

The calculation process and description for the country and firm-specific variables are provided in this table. All firm-specific variables are calculated from the FY 2021
reported estimates obtained from Refinitiv database.
Appendix A.2: Average abnormal returns during the event window
AARAll AARAmericas AARAsia AAREMEA AARPacific
Date
(n=134) (n=24) (n=50) (n=27) (n=33)
-0.003 0.007 -0.014* -0.004 0.007
t-7
(-0.94) (0.54) (-3.39) (-0.75) (1.29)
0.012* 0.035** 0.009** -0.006 0.013**
t-6
(3.58) (2.72) (2.15) (-1.08) (2.41)
0.002 0.006 -0.002 0.004 0.004
t-5
(0.62) (0.46) (-0.48) (0.69) (0.74)
0.021* 0.066* 0.013* 0.001 0.018*
t-4
(6.53) (5.04) (3.16) (0.23) (3.39)
-0.008** -0.026 0.001 -0.012** -0.004
t-3
(-2.30) (-1.96) (0.21) (-2.23) (-0.70)
-0.013* -0.007 -0.011** -0.002 -0.03*
t-2
(-4.06) (-0.55) (-2.60) (-0.47) (-5.66)
-0.002 -0.015 0.000 0.006 -0.001
t-1
(-0.50) (-1.15) (0.00) (1.17) (-0.14)
-0.013* -0.019 -0.004 -0.013** -0.022*
t
(-3.97) (-1.47) (-0.92) (-2.54) (-4.12)
0.01* 0.025 0.000 -0.003 0.024*
t+1
(2.95) (1.89) (-0.03) (-0.59) (4.47)
-0.007** -0.013 -0.007 -0.005 -0.004
t+2
(-2.13) (-1.03) (-1.79) (-0.87) (-0.67)
0.003 -0.013 0.012* 0.007 -0.002
t+3
(0.99) (-0.98) (2.92) (1.35) (-0.31)
-0.004 -0.001 0.001 -0.011** -0.006
t+4
(-1.12) (-0.07) (0.16) (-2.05) (-1.18)
-0.001 -0.023 0.003 -0.008 0.015*
t+5
(-0.22) (-1.78) (0.80) (-1.46) (2.84)
Notes: * and ** are values significant at 1% and 5% level, respectively. Figures in parenthesis represent t-values.
AARAll, AARAmericas, AARAsia, AAREMEA, and AARPacific represents the average abnormal returns for the whole
sample, American market, Asian market, Europe, Middle-East, & African market, and the Pacific market
respectively. n is the number of firms in each market set.

10
Appendix A.3: Number of significant cumulative abnormal returns in different market sets
Americas (n=24) Asia (n=50) EMEA (n=27) Pacific (n=33) Total
Window
-ve +ve -ve +ve -ve +ve -ve +ve -ve +ve
[-5,-1] 0 1 17 7 4 5 7 3 28 16
[-3,-1] 2 0 5 4 1 4 8 1 16 9
[-1,+1] 2 2 9 7 4 2 2 1 17 12
[0,0] 1 2 1 5 4 2 3 1 9 10
[+1,+3] 5 2 7 3 5 3 0 5 17 13
[+1,+5] 10 3 9 7 9 4 1 10 29 24

11
Appendix A.4: Cross sectional regression main results
Cumulative abnormal returns
Variables
[-5, -1] [-3, -1] [-1, +1] [0, 0] [+1, +3] [+1, +5]
Country-specific variables
TTCI -0.0582*** -0.0217 0.0021 0.0041 -0.0056 0.0125
(0.0217) (0.0240) (0.0148) (0.0137) (0.0178) (0.0215)
IT 0.0065 0.0064 -0.0076 0.0024 -0.0013 0.0086
(0.0075) (0.0083) (0.0051) (0.0047) (0.0062) (0.0074)
TTG -0.0056 -0.0135 0.0041 0.0003 -0.0006 0.0235**
(0.0103) (0.0115) (0.0070) (0.0065) (0.0085) (0.0102)
ERU -0.0034 -0.0033 -0.0007 -0.0026 0.0120*** 0.0203***
(0.0042) (0.0046) (0.0028) (0.0026) (0.0034) (0.0041)
Firm-specific variables
LNTA 0.0075** -0.0007 0.0011 0.0021 -0.0063** -0.0110***
(0.0034) (0.0038) (0.0023) (0.0021) (0.0028) (0.0034)
VOL 0.0009*** -0.0011*** 0.0003*** -0.0009 0.0002* 0.0002**
(0.0001) (0.0001) (0.0001) (0.0000) (0.0001) (0.0001)
FLIQ -0.0129*** -0.0048 -0.0031* -0.0002 0.0028 0.0045*
(0.0027) (0.0030) (0.0018) (0.0017) (0.0022) (0.0027)
SLIQ 0.0059 -0.0012 -0.0018 -0.0015 -0.0046 -0.0112
(0.0069) (0.0077) (0.0047) (0.0044) (0.0057) (0.0069)
TDTA 0.0164 -0.0117 0.0225*** 0.0102 -0.0046 -0.0203*
(0.0108) (0.0119) (0.0073) (0.0068) (0.0089) (0.0107)
ROA 0.0073 -0.0139 0.0319*** 0.0210*** -0.0099 -0.0142
(0.0122) (0.0135) (0.0083) (0.0077) (0.0100) (0.0121)
CASH -0.0002 0.0004 0.0006 0.0005 -0.0005 -0.0003
(0.0008) (0.0009) (0.0005) (0.0005) (0.0007) (0.0008)
PAST 7.5086*** -1.588 1.5919** 0.7909 2.0515** 2.2998**
(1.1365) (1.2617) (0.7761) (0.7180) (0.9370) (1.1260)
Constant 0.1081 0.1808 0.0761 -0.1162 0.1238 -0.1854
(0.1706) (0.1894) (0.1165) (0.1078) (0.1407) (0.1691)
Adjusted R2 0.72 0.54 0.39 0.05 0.26 0.33
F-statistic 25.22 11.91 6.89 1.50 4.29 5.46
Observations 112 112 112 112 112 112

Note - Standard errors are reported in parenthesis. Significance level is shown as *** p<0.01, ** p<0.05,
*p<0.1.

12
Appendix A.5: Cross sectional regression robust results
Cumulative abnormal returns
Variables
[-5, -1] [-3, -1] [-5, -1] [0, 0] [-5, -1] [+1, +5]
Country Specific Variables
TTCI -0.0582*** -0.0218 0.0021 0.0041 -0.0056 0.0125
(0.0168) (0.0146) (0.0148) (0.0111) (0.0182) (0.0222)
IT 0.0065 0.0064 -0.0076 0.0024 -0.0014 0.0086
(0.0067) (0.0059) (0.0062) (0.0044) (0.0060) (0.0089)
TTG -0.0056 -0.0135 0.0041 0.0003 -0.0007 0.0235**
(0.0115) (0.0110) (0.0076) (0.0085) (0.0089) (0.0108)
ERU -0.0034 -0.0033 -0.0008 -0.0026 0.0120*** 0.0203***
(0.0039) (0.0035) (0.0032) (0.0025) (0.0040) (0.0043)
Firm Specific Variables
LNTA 0.0075** -0.0007 0.0012 0.0022 -0.0063* -0.0110***
(0.0038) (0.0034) (0.0026) (0.0021) (0.0033) (0.0034)
VOL 0.0009*** -0.0011** 0.0003** -0.0001 0.0002 0.0002**
(0.0002) (0.0004) (0.0001) (0.0001) (0.0001) (0.0001)
FLIQ -0.0129*** -0.0048 -0.0031 -0.0003 0.0029 0.0045*
(0.0026) (0.0049) (0.0022) (0.0022) (0.0025) (0.0026)
SLIQ 0.0060 -0.0013 -0.0019 -0.0016 -0.0047 -0.0112
(0.0058) (0.0052) (0.0049) (0.0041) (0.0101) (0.0091)
TDTA 0.0164 -0.0117 0.0225*** 0.0102 -0.0047 -0.0203
(0.0235) (0.0124) (0.0084) (0.0069) (0.0151) (0.0161)
ROA 0.0074 -0.0140 0.0319*** 0.0210** -0.0100 -0.0142
(0.0291) (0.0153) (0.0104) (0.0092) (0.0145) (0.0150)
CASH 0.0000 0.0004814 0.0007 0.0001 -0.0005 -0.0004
(0.0007) (0.0009) (0.0005) (0.0006) (0.0006) (0.0008)
PAST 7.5086*** -1.5889 1.5920 0.7909 2.0515 2.2998**
(1.4461) (2.5034) (1.0393) (1.0032) (1.3193) (1.0982)
Constant 0.1082 0.1808 0.0761 -0.1162 0.1239 -0.1854
(0.1614) (0.1294) (0.1249) (0.1003) (0.1597) (0.2039)
R2 0.75 0.59 0.46 0.15 0.34 0.40
F-statistic 6.78 4.80 3.43 1.27 3.45 12.43
Observations 112 112 112 112 112 112

Note - Robust standard errors are reported in parenthesis. Significance level is shown as *** p<0.01,
**p<0.05, * p<0.1.

13
Figure 1: The empirical framework

Source: Drawn by the authors

14
Figure 2: AAR and CAAR-line for the global tourism firms during the 15-day event window
0.06

0.05

0.04

0.03

0.02

0.01

0
t-7 t-6 t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5
-0.01
AAR CAAR
-0.02

15
Figure 3: AAR and CAAR-line for the tourism firms in different market sets during the 15-day event window

16