Bankruptcy Prediction: Smes in the Hospitality Industry

Abstract

The objectives of this study are to predict bankruptcy risk among SMEs in the hospitality industry for a three-year horizon period and to investigate the factors that are significant in determining bankruptcy. The contribution of SMEs in the hospitality industry is essential as businesses in the hospitality industry are dominated by SME operators. However, the failure rate among SMEs is relatively high and almost 50 percent of hospitality establishments do not survive beyond five years of operation. The Stepwise logistic model was employed to determine significant predictors that could predict bankruptcy for the period of one year, two years and three years before bankruptcy. Return on assets and firm age were found to be significant in all periods while other variables were identified to be important at a specific period prior to bankruptcy. In addition to return on assets and firm age, debt ratio and total assets turnover were found to be significant predictors of bankruptcy one-year prior to bankruptcy. However, in the two years prior to bankruptcy, debt ratio and total assets turnover were no longer important but current ratio, ownership concentration and gender diversity were found to be significant. As for the three years prior to bankruptcy, additional variables namely debt-to-equity ratio and board size were found to be significant, but ownership concentration and gender diversity ceased to be important. The findings of this study contribute to the limited literature in predicting the bankruptcy risk of small firms for a three-year horizon period by providing empirical evidence from SMEs in the hospitality industry of Malaysia.

Financial distress in the Austrian tourism industry: hotels and restaurants analysis

“…= 0.000). This is consistent with Abidin et al (2021), who showed that the probability of failure decreases with age. Belda & Cabrer-Borrás (2021) also show that the survival rate increases with age.…”

“…Over-indebtedness (ONEG) impacts the probability of financial distress for both sub-branches. This confirms the general view that an increase in debt leads to an increase in risk for tourism firms (Abidin et al, 2021;Axioglou & Christoulakis, 2021;Upneja & Dalbor, 2001).…”

“…A closer look reveals that these studies have concentrated on a few specific countries worldwide. It can be stated that the size and age of the tourism business influence (Abidin et al, 2021;Belda & Cabrer-Borrás, 2021;Parsa et al, 2015Parsa et al, , 2011 the probability of crisis and insolvency. Furthermore, the figures of the financial statement analysis have high importance in all studies to describe the health status of tourism businesses (debt ratio [Gu, 2002;Kim & Gu, 2006;Park & Hancer, 2012], profitability [Kim, 2011;Zhai et al, 2015] or even liquidity [Diakomihalis, 2012;Kim, 2011]).…”

“…In general, the risk of tourism businesses (and thus their probability of insolvency) is increasing with an increase in debt (Abidin et al, 2021;Axioglou & Christodoulakis, 2021;Chen, 2013;Upneja & Dalbor, 2001). Furthermore, profitability or profit margins (measured according to different possibilities, e.g., EBIT/TA, NI/S, NI/TA, ROE) appear to be a relevant explanatory variable.…”

“…Belda & Cabrer-Borrás (2021) came to a similar conclusion for hospitality firms. Regarding age, Abidin et al (2021) and Belda & Cabrer-Borrás (2021) showed that older hospitality firms have a higher probability of survival and a lower probability of bankruptcy, respectively. In addition to the variables mentioned above, other significant variables are relevant, which can be seen in Table . A1.…”