How can insolvency in tourism be predicted? The case of local accommodation
International Journal of Tourism Cities
ISSN: 2056-5607
Article publication date: 22 June 2022
Issue publication date: 9 December 2022
Abstract
Purpose
The specific typology of local accommodation in Portugal has undergone a huge expansion accompanied by a proliferation in the number of firms and it is crucial that the firms associated with this boom can ensure their survival and remain in the market. The purpose of this paper is to specify an insolvency forecasting model and identify which financial indicators best contribute to forecasting insolvency in local accommodation firms.
Design/methodology/approach
At the methodological level, the financial data of firms in this sector were initially collected via the SABI database; then the probit model was estimated to perform the analysis of financial variables, with the aim of observing their behaviour and understanding which are crucial in predicting business insolvency.
Findings
Given the scarcity of studies in this specific typology of accommodation, the results of this paper are relevant and increase the knowledge for the sector. They also enable the identification of financial ratios that deserve greater attention from those responsible for firms in this sector, namely, profitability and liquidity ratios. In short, profitability ratios vary inversely with the probability of insolvency, so that firms with higher levels of net profitability, asset rotation or accumulated profitability have a lower probability of insolvency, with the opposite being true in terms of liquidity, where firms with higher current assets are more likely to become insolvent.
Originality/value
The novelty of this paper is focused on the urgent need for tourism accommodation stakeholders to prevent or anticipate insolvency and identify which financial indicators best contribute to forecasting insolvency. This research is fundamental, as many cities are considered major tourist destinations and where a high number of tourism businesses are concentrated.
Keywords
Acknowledgements
This work was financially supported by the research unit on Governance, Competitiveness and Public Policy (UIDB/04058/2020) + (UIDP/04058/2020), funded by national funds through FCT – Fundação para a Ciência e a Tecnologia.
Citation
Correia, C., Costa, R.A., Mota, J. and Breda, Z. (2022), "How can insolvency in tourism be predicted? The case of local accommodation", International Journal of Tourism Cities, Vol. 8 No. 4, pp. 1127-1140. https://doi.org/10.1108/IJTC-08-2021-0166
Publisher
:Emerald Publishing Limited
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