Key Ratios for Long-Term Prediction of Hotel Financial Distress and Corporate Default: Survival Analysis for an Economic Stagnation

Antonio Pelaez-Verdet,Pilar Loscertales-Sanchez

doi:10.3390/su13031473

Abstract

Hospitality companies often face economic crises, which stress their financial structure. In 2008, Spanish hotels were jeopardized when the travelers’ flows became stagnated, in either domestic and foreign markets. Most of them overcame the crisis, but not all, in part depending on their capital structure at the moment the downturn loomed upon them. This study analyzes the financial ratios registered in 2008 by 3.341 Spanish lodging enterprises, to find out the most relevant ratios that were associated with an eventual breakdown. The analyzed ratios have been largely suggested by previous literature for anticipating financial distress; however, using survival tables and Kaplan–Meier estimates we could also find new insights about several promising variates for future research. In the end, by performing a Cox regression, we could isolate the return on capital employed (ROCE) ratio as a long-term predictor for small hotels’ bankruptcy after a market downturn. Moreover, the legal status seems to be a key predictor concerning medium-sized hotels.

Highlights

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We needed to combine the list with information about their financial ratios comprising 2008–2019 years, due to the fact that the last available report recorded in the dataset was 2019, and we would like to consider the largest timeline feasible for the study
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Summary

Introduction

The corporate financial soundness can be analyzed using financial ratios, in a rather similar way than a person’s health using a blood analysis. Financial ratios are proportions of relative magnitudes that use two or more figures taken from financial statements. A good set of ratios, carefully chosen and properly analyzed, can even give an expert an accurate idea of how much time could the firm live before entering a financial distress period and, eventually, go bankrupt. The interest from both industry and scholars on this topic gained intensity after several rather expensive corporate failures from 2000 onward

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