Rainfall financial risk assessment in the hospitality industry

Simona Franzoni · Cristian Pelizzari

26 citations0/0 files storedInternational Journal of Contemporary Hospitality Management

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Risk Management in Financial Firms Diverse Aspects of Tourism Research Insurance and Financial Risk Management

Abstract

Purpose The variability of weather at tourist destinations can significantly affect travel decisions by tourists and their comfort. In particular, rain affects the profitability of hospitality firms that can hardly contrast the phenomenon of heavy rain. Therefore, the assessment of rainfall financial risks, i.e. the negative economic effects caused by rain, becomes crucial to safeguarding the profitability of the hospitality industry. The purpose of this study is to assess such risks. Design/methodology/approach The present work contributes to the literature on weather/climate change and tourism by advancing a model for the rainfall financial risk assessment of hospitality firms. The model is based on scenario correlation between business performances and rain and originates from the Enterprise Risk Management (ERM) presented by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), where some tools to adequately face business risks are advanced. Findings The model is complemented by an empirical experiment based on the business performances of the hospitality industry of Lake Garda and the amount of rainfall in the same area during the decade 2005-2014. The empirical application detects scenario correlation between those variables over time. In particular, the findings open opportunities to purchase financial instruments (insurance contracts, derivative instruments, etc.) with greater awareness, with the purpose of mitigating the negative impacts of rain on business performances of hospitality firms. Originality/value The model improves scenario analysis by introducing scenario correlation, which is a tool for assessing the highly nonlinear links between business performances and rain in today’s complex world. This is the essential step that firms should perform if they want to successfully adopt strategic decisions about rainfall financial risk management.

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References

1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 2014What Do We Learn from the Weather? The New Climate-Economy Literature 2016Social and economic impacts of climate 2012Enterprise Risk Management—Integrated Framework 2015Climate and Conflict 2011Consumer behaviour and demand response of tourists to climate change 1985THE TOURISM CLIMATIC INDEX: A METHOD OF EVALUATING WORLD CLIMATES FOR TOURISM 2005Weather, climate and tourism a geographical perspective

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