Tourism Firms’ Vulnerability to Risk: The Role of Organizational Slack in Performance and Failure

Abstract

This study explores the influence of political risk on firms in the tourism industry. It addresses a research gap regarding the impact of political risk on firm-level performance and failure and uncovers the role of organizational slack in this relationship. Firm-level political risk is estimated from 2002 to 2019 financial data for firms across six tourism sectors in a developed economy, the United States. Such risk is found to be significantly associated with firm performance and business failure. From the perspectives of the resource-based view and the threat-rigidity hypothesis, the results support the moderating effects of absorbed and unabsorbed slack on links between risk, performance, and business failure. Given that the COVID-19 pandemic has highlighted the tourism industry’s vulnerability, this study will be of interest to tourism firms seeking to improve business sustainability and resilience.

Linking resource slack to operational resilience: Integration of resource-based and attention-based perspectives

“…Contrary to the RBT prediction, evidence from the study shows that resource slack does not have a significant direct association with operational resilience. Without considering the unit of analysis, this finding generally corroborates some previous research findings (e.g., Zheng et al, 2021;Iborra et al, 2020) and yet is inconsistent with other findings (e.g., Agusti et al, 2020;Li 2021). In consideration of the developing economy context of the data used in this study, it is interesting that resource slack alone does not enhance operational resilience in such a low resource setting.…”

“…Such resources may be absorbed (i.e., those already committed to factors of production) or unabsorbed (i.e., those available for discretionary use). Again, slack resources can be categorized based on liquidity level: available slack (e.g., excess cash-in-hand), potential slack (e.g., capacity to access external funds), and recoverable slack (e.g., excess inventory) (Zheng et al, 2021;Tan and Peng 2003). Moreover, firms can build slacks around different resource forms such as financial, human, materials, and technology (Brandon-Jones et al, 2015;Hendricks et al, 2009;Meyer 1982).…”

“…While some studies find a positive relationship between resource slack and firm performance during/after disruptions (Li 2021;Tognazzo et al, 2016), others find a negative (Agusti et al, 2020) or non-significant (Iborra et al, 2020;Tognazzo et al, 2016) relationship. Second, the proxies used to measure resilience in previous research are either overall firm performance (e.g., financial ratios) (Agusti et al, 2020;Zheng et al, 2021) or intermediate and long term performance indicators (e.g., growth, firm survival) (Iborra et al, 2020;Tognazzo et al, 2016). Such resilience proxies, as they are influenced by a more complex set of internal and external environmental factors, can undermine empirical efforts to isolate the resilience effects of resource slack (Tognazzo et al, 2016).…”

Visualizing the Development of Research on Tourism Resilience With Mixed Methods

“…The tourism industry has been regarded as a highly sensitive and vulnerable industry (Aramberri & Butler, 2005; Bai & Ran, 2022; Biggs, 2011; Chen, 2010; Dube et al, 2021; Duro et al, 2021; Hu et al, 2021; Kennedy et al, 2022; Liu, 2003; McKercher, 1993; Smith & Eadington, 1992; Sönmez et al, 1999; Zheng et al, 2022) because both natural and social factors, such as economic crises (Papatheodorou et al, 2010), crime (Michalko, 2004) and terrorism (Sönmez et al, 1999), infectious diseases (Butler, 2020; Duro et al, 2021; Hall et al, 2021), tsunamis(Calgaro & Lloyd, 2008), earthquakes (Mazzocchi & Montini, 2001), floods and debris flows (Tsai & Chen, 2011), and climate change (Amelung et al, 2007; Nyaupane & Chhetri, 2009; Santos-Lacueva et al, 2017; Scott et al, 2019), can have tremendous negative impacts on the sustainable development of the industry. These impacts can further increase the vulnerability of tourist destinations, especially those that highly depend on the tourism sector (Calgaro & Lloyd, 2008; Farrell et al, 2020; Sheller, 2021), and of individuals such as the local residents of tourist destinations (Seraphin et al, 2020), tourists (Zheng et al, 2021), and tourism practitioners (Lombardi et al, 2021; Luu, 2021).…”

Disaster Risk Management Preparedness and Challenges of a Local Beach and Dive Resort in Southern Negros Occidental

“…Stakeholders often face common challenges, such as the political hazard(Zheng et al, 2022), ineffective communication(El Khaled & Mcheick, 2019), culture (Appleby-Arnold et al, 2018), and imbalance of power and resources(Saito & Ruhanen, 2017). It is, therefore, crucial to study the experiences of local tourism stakeholders in considering the contribution of tourism to disaster processes and perceiving the interconnection with each other(Okuyama, 2018).Promoting individual disaster preparedness is one of the most effective ways to reduce disaster risk.…”