Comparing logit model with discriminant analysis for predicting bankruptcy in Portuguese hospitality sector

Abstract

Portugal’s tourism sector is on permanent expansion and contributes significantly to the Portuguese economy. However, it has been facing the problem of business failure. The main goal of this paper is to develop an econometric and a multivariate model for forecasting business failure in the hospitality industry using logit and discriminant analysis. The present paper does not explore the causes of business failure but rather aims to propose a model that may help anticipate failure, so that decision makers can minimize the negative effects of this phenomenon. The results confirm that the models for forecasting business failure contribute positively to setting macroeconomic policies and tourism development support programs and are relevant for investors, stockholders, and decision makers.