Tourism SME default: A note on predictors

Abstract

This note addresses the lack of progress on small and medium enterprises (SMEs) default prediction in the tourism sector. Using the case of Croatian tourism SMEs, this note applies Altman's recently introduced Omega Score model to (i) predict SME default, (ii) explore and contrast important variables for default prediction in tourism vs. other sectors, and (iii) adapt the original Omega Score to tourism sector specifics. Financial ratios have historically been prominent among the predictors in scholarly investigations. However, our findings underscore the significance of supplementing these ratios with other predictors of tourism SME default, specifically with information on (i) creditor payment behaviour and (ii) employee characteristics and relationships with them. Furthermore, our research demonstrates that a refined selection of six variables, accompanied by adjusted weightings, can significantly enhance default prediction accuracy. The results provide valuable lessons for the strategic management of tourism firms.