Analyzing bankruptcy in the restaurant industry: A multiple discriminant model

Gu, Zheng

doi:10.1016/s0278-4319(01)00013-5

Cited by 105 publications

(145 citation statements)

References 19 publications

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“…In the restaurant industry, a significant number of U.S. restaurants go bankrupt every year due to the fast expansion accompanied by fierce competition (Gu, 2002). Similar situation was occurring in the casino industry.…”

Section: Introductionmentioning

confidence: 85%

“…Gu and Gao (2000) estimated a multivariate discriminant analysis (MDA) model to predict bankruptcy for hospitality firms including restaurant, hotel, and casino firms. Gu (2002) further focused on the bankruptcy prediction in the restaurant industry using the same MDA methodology. The MDA model is subject to restrictive assumptions, especially the independent variables' multivariate normality which was often violated (Lennox, 1999).…”

Section: Introductionmentioning

confidence: 99%

“…The MDA model is subject to restrictive assumptions, especially the independent variables' multivariate normality which was often violated (Lennox, 1999). Both Gu & Gao (2000) and Gu (2002) studies failed to check the multivariate normality of their predicting variables, thus making the statistical soundness of the estimated models doubtful. Another limitation of the two studies was the short-term predictive ability of their MDA models.…”

Section: Introductionmentioning

confidence: 99%

“…Both models were designed to predict bankruptcy only one year in advance. Realizing the limitations of the MDA models estimated by the two previous studies (Gu, 2002;Gu & Gao;, this study attempts to develop a logistic regression prediction model that is free from restrictive assumptions (Lennox, 1999). Furthermore, unlike those two studies, the underlying study seeks to predict hospitality firm bankruptcy as early as two years in advance.…”

Section: Introductionmentioning

confidence: 99%

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A Logistic Regression Analysis For Predicting Bankruptcy In The Hospitality Industry

Kim

2006

The Journal of Hospitality Financial Management

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The purpose of this study was to develop logit models for predicting bankruptcy in the hospitality industry. Using the financial data of 16 U.S. hospitality firms that went bankrupt between 1999 and 2004 and 16 non-bankrupt matching firms, this study estimated logit models for predicting bankruptcy up to 2 years in advance. The logit models, resulting from forward stepwise selection procedures, could correctly predict 91% and 84% of bankruptcy cases 1 and 2 years earlier, respectively. The estimated models imply that a hospitality firm is more likely to go bankrupt if it has lower operating cash flows and higher total liabilities. The models suggest that a prudent sales growth strategy accompanied by tighter control of operating expenses and less debt financing can help enhance a firm's ability to meet its financial obligations and thereby reduce bankruptcy risk.

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Section: Introductionmentioning

confidence: 85%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A Logistic Regression Analysis For Predicting Bankruptcy In The Hospitality Industry

Kim

2006

The Journal of Hospitality Financial Management

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“…This "cornerstone" industry, however, is not immune from the current economic recession and has been facing great challenges in recent years. The restaurant industry has traditionally been relying heavily on consumers' discretionary spending (Gu, 2002). The current credit crisis and extended recession of the U.S. economy have forced many customers to cut back their spending on travel and hospitality consumptions.…”

Section: Introductionmentioning

confidence: 99%