The vast majority of over 150 studies conclude that smoking bans do not have adverse effects on the revenues, profits, or employment of hospitality industry firms. However, several important criticisms have recently been raised which call into question many of the prior results. I examine the market value impact of a proposed smoking ban using a sample and methodology not subject to the perceived shortcomings in prior studies – an event study on the Indian hospitality industry. Contrary to the results in most prior studies, I find negative abnormal stock returns to portfolios of the hospitality industry firms examined upon the announcement of a proposed smoking ban. These results support the conclusion that a smoking ban lowered the aggregate market value of these firms.
As local and national governments worldwide continue to consider whether or not to adopt laws restricting smoking in public places, and the extent of any such restrictions, a critical issue has often been the impact of smoking bans on the local hospitality industry (Eriksen and Chaloupka, 2007). Because of the importance of this issue, over 150 studies have examined the economic effects of smoking bans on the hospitality industry by studying such metrics as sales, employment, firm value, bankruptcy, the number of establishments, or some combination of these (Fleck and Hanssen, 2008; Scollo and Lal, 2008). With a few exceptions, these studies conclude that smoking bans have no economic effects or positive economic effects on the firms studied. However methodological shortcomings in the prior studies have been identified and the area of study has become emotionally charged (Marlow, 2008).
In this paper, I employ a method and data sample which are not subject to the primary criticisms that has been raised against prior empirical studies. I examine the stock market...