Predicting Financial Distress in a Portuguese Tourism Business Group

Abstract

The omission of financial information by the management and the global financial crisis, reinforced the interest in the corporate bankruptcy prediction models. Several authors suggested multiple corporate bankruptcy prediction models. Despite the interest of this specific financial area, there is no accordance regarding the effectiveness of the models in different activities and periods. In Portugal this is more relevant in the tourism sector since this is one of the sectors with greater weight on the public revenue and with a high rate of economic growth. This is the motivation for the paper. The aim of the study is to analyse the prediction of financial distress of tourism companies from the Portuguese business group Mystic Invest, for the period between 2013 and 2017. This is the contribution of this paper since most of the works analyse the bankruptcy prediction. Applying a generalized linear model Logit and with the ratios proposed by Altman and Ohlson, the empirical results show a medium to high prediction effectiveness in the sample that includes all the companies from the business group, as well in the sample just with the tourism companies, that tends to decrease as the bankruptcy moment moves away, and reduced type I errors.