What Drives Restaurants Bankrupt? A Survival Analysis Perspective

Keywords

Bankruptcy prediction; Competing risk; Cox proportional hazard model; Hazard rate; Survival analysis; U.S. restaurant firms

Abstract

Even though the bankruptcy of financially distressed business entails significant direct and indirect costs to stakeholders, including shareholders, owners, lenders, managers, and employees, the development of bankruptcy prediction models is not a common topic for the hospitality industry. The main objective of this paper is to investigate the key dominants of restaurant bankruptcy in U.S. over the period between 1980 and 2014 by using survival analysis. While an increase in excess market return decreases the hazard of entering into bankruptcy; a choice to be a limited service restaurant increases the likelihood of its going bankrupt by almost six times. The result shows the potential usefulness of market-driven risk factor for the prediction of restaurant bankruptcy. Firms having experienced a high stock return over the previous 12 months are less likely to go bankrupt. Limited-service restaurant is more likely to become bankruptcy. Hazard ratio for Limited 5.694 indicates that the risk of becoming bankruptcy changes by a multiple of 5.694 as the restaurant unit increases in limited-service. The lower category come along with less management skill and lower price, hence, negatively impacted on gross profit. Therefore, the restaurateurs should be more cautious about the selection of operation type to enhance financial stability of the firm.

Publication Date

1-1-2017

Publication Title

Progress in Economics Research

Volume

39

Number of Pages

143-168

Document Type

Article; Book Chapter

Personal Identifier

scopus

Socpus ID

85044516634 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85044516634

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