Predicting business failure in the hotel industry: the case of Kenya Tourist Development Corporation hotels
Abstract
Using financial distress models to predict failure in advance is for most businesses
absolutely essential in their decision making process. Hence, this study involved a critical
investigation in the applicability of the Altman (1968) Z -score models in predicting
financial distress in hotels owned by Kenya Tourist Development Company. Testing the
model in Kenyan context was important to determine the practical applicability and
relevance of the model. The main objective of the study was to test the Altman model in
determining practical predictive ability of failure in selected hotel companies.
The sample companies were 10 failed and 20 nonfailed hotel companies owned by
KTDC from 1999 to 2003. The study employed an analysis of financial statements and
derived the Z-score of the sampled companies to test the predictive ability of the models
in forecasting bankruptcy. The analysis utilized ratios, which are related to the model in
the study. The results reported in the empirical study for total failed and nonfailed sample
companies shows that the model is able to predict failure and non-failure amongst
Kenyan companies in hotel industry. Therefore, the study concluded that the Altman
bankruptcy prediction model is justifiable to be applied to predict bankruptcy in Kenyan
hotel industry. Hence, it is advisable to use these models in predicting failure in the nonmanufacturing firms, especially in Kenyan context.
Citation
Master of business administrationPublisher
University of University School of Business