International Journal of Hospitality Management 94 (2021) 102799

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International Journal of Hospitality Management

journal homepage: www.elsevier.com/locate/ijhm

COVID-19 impact on the hospitality industry: Exploratory study of

financial-slack-driven risk preparedness
Monika Wieczorek-Kosmala
University of Economics in Katowice, College of Finance, 1 Maja 50, 40-287 Katowice, Poland

A R T I C L E I N F O A B S T R A C T

Keywords: The hospitality industry is regarded as one of the most affected by the consequences of COVID-19 pandemic, and
Financial slack the undefined persistence of the pandemic duration raises anxiety about the ability to recover from this dramatic
Risk preparedness situation. In this regard, the purpose of this exploratory study is to shed light on the COVID-19 risk preparedness
COVID-19
of hospitality businesses, as driven by the financial slack holdings and persistence. The empirical findings
Pandemic
Hospitality industry
confirm that their financial-slack-driven risk preparedness should be judged as relatively low. A majority of the
examined hospitality businesses demonstrated low or insufficient financial slack holdings and recently have
consumed their financial slack resources. Thus, the abilities of hospitality businesses to sustain the liquidity
tensions that emerged after the COVID-19 outbreak are questionable. Facing this evidence, we draw conclusions
about the necessary design of system interventions that could prevent bankruptcy in the hospitality industry.

1. Introduction outbreak. The problem is obviously a relevant industry priority and is

In the 21st century, the world has been threatened by the risk of
pandemic several times. Previous incidents, including outbreaks of the
SARS and MERS coronaviruses, the avian and swine flues and very
recently the Zika virus, have been perceived as severe threats to the
continuity of numerous businesses, including those operating in the
hospitality industry (and the whole travel and leisure-related sector).
However, the current COVID-19 pandemic is unprecedented in the scale
of its global impact and ‘is affecting the DNA of hospitality at its core’
(Rivera, 2020).
At governmental levels, the COVID-19 pandemic has created an ur­
gent need to ensure the sufficiency of healthcare systems and has led to
the implementation of various intervention mechanisms directed at
slowing the spread of the virus. These mechanisms imposed social
distancing, bans on mass events, and numerous travel restrictions, for
example, border closures. Thus, it is not surprising that travel and
leisure-related industries, especially the hospitality industry, are at the
top of the list of most affected branches of economies. However, slowing
the virus spread prolongs the period of businesses discontinuities. In
fact, it is difficult to predict the duration of the pandemic, which shifts
this risk to undefined persistence and increases businesses’ anxiety.
The situation raises an important question on whether the hospitality
businesses are prepared to sustain and successfully recover from the
period of operating discontinuity caused by the waves of pandemic
addressed in this study by exploring the extent of hospitality businesses’
risk preparedness from financial perspective. Facing the sudden outflow
of customers and inability to generate cash inflows from sales, the
hospitality businesses are exposed to high liquidity tensions, which
imposes greater risk for their successful recovery. However, liquidity
tensions are less problematic for firms that hold a buffer of available
funds. Thus, the empirical investigation of risk preparedness performed
in this study utilizes the concept of financial slack as a resource. In
general, financial slack refers to uncommitted and high-discretionary
liquid assets held by the company, in particular, the holdings of cash
and marketable securities (Daniel et al., 2004; Mishina et al., 2004;
Bourgeois, 1981). In the context of risk preparedness, the buffering
function of financial slack is critical; financial slack resources provide a
cushion against the liquidity tensions caused by the disruptions of
operating performance. In other words, the businesses distinguished by
higher levels of financial slack holdings are regarded as those with better
risk preparedness.
This study contributes to the existing literature on available slack
holdings by exploring solely the situation of hospitality businesses. This
is relevant, as prior works have confirmed financial slack holdings being
related to firm and industry-specific characteristics (for an overview,
see, e.g., Daniel et al. (2004) and McMahon (2006)). Moreover, this
study goes beyond the common methodical approaches that employ
regression to find the determinants of liquid assets holdings. For

E-mail address: m.wieczorek-kosmala@ue.katowice.pl.

https://doi.org/10.1016/j.ijhm.2020.102799
Received 10 June 2020; Received in revised form 28 October 2020; Accepted 21 November 2020
Available online 9 February 2021
0278-4319/© 2021 Elsevier Ltd. All rights reserved.
M. Wieczorek-Kosmala
hospitality industry such approach was adopted by Kim et al. (2011) on
a sample of US restaurants or recently by Demir et al. (2019) on hos­
pitality industries located in emerging countries. To better address the
risk-preparedness context, this study expands the existing approaches,
by developing a model to evaluate financial-slack-driven risk pre­
paredness, which offers another relevant contribution. The model clus­
ters the companies with regard to both the size of their financial slack
holdings (sufficient or insufficient) and their slack behavior over time
(slack consumption or slack accumulation). In this respect, this study
supplements the identification of the determinants of liquid assets
holdings.
This exploratory work contributes also to the existing body of liter­
ature on risk and crisis management in the hospitality industry. As
pointed out by Paraskevas and Quek (2019), the literature on risk and
crisis management in travel and leisure-related industries (including the
hospitality industry) has remained focused on understanding the crisis
situations and on analyzing the recovery paths, often following a ‘cri­
sis-by-case’ approach. Works that revise the recent epidemics (SARS or
avian and bird flues) from the perspective of the hospitality industry
confirm this statement (for instance, Chen et al. (2007); Chien and Law
(2003); Wu et al. (2010); Chuo (2014), and Tse et al. (2006)). In this
respect, a relevant contribution of this work is the emphasis on the
relevance of liquid assets holdings in the effective recovery from dis­
ruptions, followed by the exploration of the factual recovery starting
point from an industry oriented perspective. In this aspect, this paper
also responds to the call for studies that help to better understand the
resilience capabilities of businesses related to the travel and leisure
sector and the factors that drive these capabilities. The call for this kind
of research was addressed by Ritchie and Jiang (2019) and Mansfeld and
Pizam (2006), grounded in a summary of prior studies related to risk
management in the travel and leisure-related industries.
In the empirical layer, the paper explores the situation of hospitality
businesses that operate in four central European countries: the Czech
Republic, Hungary, Poland and Slovakia. These countries are regarded
as comparable on numerous dimensions of their economic performance,
driven by the similar routes of the process of transformation from a
command to market economy and European Union accession. These
countries are also regarded as comparable in terms of the contribution of
the travel and leisure sector to their GDPs and are judged as equally
popular tourist destinations (Krzesiwo et al., 2018). Moreover, facing
the threat of the COVID-19 pandemic, the Czech Republic, Hungary,
Poland and Slovakia implemented similar interventions, almost
perfectly coordinated in time. Thus, the impact of the pandemic risk hit
the hospitality businesses operating in these countries on a relatively
comparable scale.
The remainder of this paper is structured as follows. Section 2 ex­
plains the conceptual framework of the study. In particular, it explains
the assumptions of the proposed model of the analysis of financial risk
preparedness, as driven by financial slack holdings and persistence.
Section 3 develops research questions, whereas section 4 explains the
research design and method. Section 5 presents the results and discus­
sion. Section 6 concludes the study.
2. Conceptual framework
2.1. Financial consequences of COVID-19 disruptions from a hospitality
business perspective
In the 21st century the world has been threatened several times by
the risk of a global spread of an infectious disease. In 2009, the ‘swine
flu’ (H1N1 virus) outbreak was first officially announced to be a
pandemic by the WHO (WHO, 2009). However, the hospitality industry
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International Journal of Hospitality Management 94 (2021) 102799
was notably affected by the consequences of the epidemics of SARS
(2002–2003), MERS (2012) in Asia, Ebola in 2013–2014 in West Africa
and Zika in 2015 in Brazil and the Caribbean region (MARSH, 2020).
The literature related to risk management in the tourism and leisure
sector has reviewed the consequences of a pandemic risk from a variety
of perspectives (see, e.g., Yang et al. (2017); Ritchie and Jiang (2019) or
Rosselló et al. (2020) for an overview). For instance, the impact of prior
epidemics (SARS in particular) on travelers’ behavior and the related
decline of demand in the travel and leisure sector was addressed by Kuo
et al. (2008); Mao et al. (2010); McAleer et al. (2010); Rosselló et al.
(2017) and Yang et al. (2017). Chen et al. (2007) studied the impact of
SARS on Taiwanese hotels’ stock performance, while Chien and Law
(2003) examined hotel performance in Hong Kong. The problem of the
impact of infectious disease spread on hotel occupancy rates was also
studied by Wu et al. (2010), following the spread of ‘swine flu’ (H1N1
virus). The impact of epidemics on various aspects of restaurant per­
formance was addressed, for instance, by Chuo (2014) (self-protective
behavior) and by Tse et al. (2006) (risk response to SARS).
The current COVID-19 outbreak, however, hit the global community
on an unprecedented scale. On 31 December 2019, the first cases of the
novel coronavirus disease were reported in Wuhan (China). Only two
weeks later (13 January 2020), the first cases were reported outside
China (in Thailand). To prevent the global spread of the virus, the
Wuhan lockdown was announced 10 days later (23 January 2020),
which was accompanied by travel restrictions to and from China
imposed by numerous countries worldwide. However, these measures
proved ineffective, and by the end of February 2020, COVID-19 has
quickly spread in north Italy. Consequently, on 12 March 2020, the
WHO announced the COVID-19 pandemic (WHO, 2020). To limit the
speed of the virus spread, numerous countries have implemented very
severe measures, such as border closures and social distancing, which
have in turn severely affected the whole travel and leisure industry. As of
20 April 2020, travel restrictions were introduced in 100% of worldwide
destinations (UNWTO, 2020).
The global lockdown and related travel restrictions have resulted in
the discontinuity of operating activity of travel and leisure-related
businesses worldwide. Following the recently published United Na­
tions World Tourism Organization (UNWTO) scenarios, depending on
the gradual opening of borders and limiting of travel restrictions, it is
expected that in 2020, we will face a drop of 58–78% in international
tourist arrivals, while international tourism receipts could plunge by 1
trillion US dollars. In the economic dimension, the overall impact in
2020 is expected to bring tremendous loss in export revenues from
tourism and to place 100–120 million direct tourism jobs at risk
(UNWTO, 2020). These figures refer to the tourism and travel sector in
general. However, as a majority of hospitality industries are tightly
related to tourism arrivals, these figures also provide insight into the
potential scale of the COVID-19 outbreak consequences in businesses
operating in the hospitality industry. Moreover, these consequences are
amplified by the social distancing measures implemented internally by
the particular countries.
If we consider the impact of the COVID-19 outbreak from a risk
management point of view, unique features of the pandemic risk need to
be addressed. In the process of risk analysis, a common approach is to
evaluate the impact of risk with reference to its probability (chance) and
severity (outcomes) (Aven, 2016; Oroian and Gheres, 2012). In the case
of pandemic risk, we are able to model the severity of risk outcomes by
addressing the consequences of the pandemic in terms of, e.g., number
of fatalities. However, pandemic risk distinguishes with indecisive
probability. Following the concept of Renn (2008), the COVID-19
pandemic has also shown the relevance of other, less common features
of risk, such as ubiquity (geographic dispersion), persistence (temporal
M. Wieczorek-Kosmala
Fig. 1. The illustration of the main directions of the COVID-19 outbreak impact on the performance of hospitality businesses.
Source: Own study
extension of consequences), and reversibility (ability to recover after the
damage). COVID-19 has spread relatively quickly around the whole
globe, and it is currently impossible to reliably define its persistence. In
fact, intervention strategies implemented by countries worldwide are
directed at slowing the virus spread (which is relevant to the healthcare
system sufficiency) and restricting human mobility, which is particu­
larly harmful for the travel and leisure-related industries (Linkov and
Trump 2019). These intervention strategies, however, expand the
duration of the pandemic to an undefined time interval. Finally, the
COVID-19 pandemic distinguishes with questionable reversibility. The
economic consequences of the virus spread and the related interventions
have an impact on numerous dimensions of human activity, in particular
the severe disruptions of the performance of numerous businesses,
inevitably followed by bankruptcy waves, increased unemployment,
and ultimately growing social concerns and anxiety. Not surprisingly,
the strongest economies worldwide expect a deep economic crisis in the
aftermath of the coronavirus pandemic.
Driven by the consequences of COVID-19 from a risk management
perspective, in Fig. 1, we present an illustration of the main directions of
the COVID-19 outbreak impact on the performance of hospitality busi­
nesses. The presented model is framed within a breakeven-point anal­
ysis, which is essential for evaluating the rationale behind the operating
activity of any business (Brigham and Ehrhardt, 2011). The
breakeven-point analysis remains focused on the relationship between
sales revenues and total operating costs to clarify whether the business is
able to produce a satisfactory operating profit margin. In this respect,
the impact of COVID-19 on hospitality businesses is twofold. First, it
significantly reduced the level of sales revenues due to the sudden
decrease of demand and sales since the moment of businesses’ lock­
down. If the businesses are allowed to return to operating activity during
the pandemic, the expected sales revenues will be lower than previously
expected, due to both the lower demand for hospitality services and the
typically imposed restrictions that are related to the reduced number of
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International Journal of Hospitality Management 94 (2021) 102799
customers. Second, during the period of discontinuity of operating ac­
tivity (between the moment of lockdown until the moment of the return
to operating activity), businesses need to cover their fixed costs. In the
hospitality industry, these costs could be relatively high because they
are related to the maintenance of the property or workforce. If the return
to operating activity is possible under further restrictions, the operating
costs could be even higher than previously expected and planned. In
particular, new sources of costs could emerge related to the imple­
mentation of the necessary safety measures (e.g., disinfection or pro­
tection of employees). The ultimate outcome is a significant decrease in
operating profit, which in turn negatively influences the profitability of
the business. The discrepancy between the expected and real operating
profit refers to the scale of its reduction. However, in real-life situations,
these discrepancies could be far more severe, leading to operating losses.
The period of discontinuity of operating activity is very severe
because, due to reduced sales, there are no cash inflows, and at the same
time, there is a necessity to pay the business’s obligations timely. This
period is critical and could lead to severe liquidity tensions and bank­
ruptcy threats. Thus, in Fig. 1, we highlight that the period of operating
discontinuity leads to the consumption of financial slack resources, if
held. To better address this issue, however, we first need to explain the
concept of financial slack and the interplay between financial slack
holdings and risk preparedness.
2.2. Financial slack holdings and risk preparedness
Effective risk management should result in better risk preparedness
by both the implementation of physical risk control measures and the
preparedness of adequate financial recovery plans. The COVID-19
pandemic has shown the relevance of being financially prepared for
operating activity disruptions. To a great extent, the ability to sustain
and recover from the operating discontinuity is determined by the
business’ ability to control the related financial consequences. In this
M. Wieczorek-Kosmala
Fig. 2. Financial-slack-driven risk preparedness – conceptual heat map.
Source: Own study
respect, the prime source of internal aid is the holdings of financial slack
resources.
In general, slack is defined as actual or potential resources held in
excess of operational needs that could potentially help to sustain the
business and adjust to any internal or external pressures (Cyert and
March, 1963; Nohira and Gulati, 1996; Zhong, 2011; Child, 1972;
Dimmick and Murray, 1978; Mishina et al., 2004; Bourgeois, 1981). This
definition of slack is consistent with the concept of ‘slack as a resource’
and addresses the utility of slack in the buffering (precautionary) func­
tion and in facilitating opportunities (e.g., Salancik and Pfeffer (1978);
Baker and Nelson (2005); Mishina et al. (2004)). However, according to
the ‘slack as inefficiency’ view, slack is unproductive and thus costly
(Daniel et al., 2004; Stan et al., 2014; George, 2005; Tan and Peng, 2003;
Bromiley, 1991; March and Shapira, 1987; Phan and Hill, 1955; Zhong,
2001; Almeida et al., 2002). Facing these two competing views, the
discussion on the rationale underlying slack holdings and the optimal
level of slack resources remains open in the academic debate (Daniel
et al., 2004; Natividad, 2013).
Following the ‘slack as a resource’ concept, financial slack is defined
in the literature as the stock of liquid assets held by the business (Mis­
hina et al., 2004; Natividad, 2013). Thus, financial slack is often asso­
ciated with so-called available slack, related to unabsorbed
high-discretionary resources held as cash or marketable securities (the
equivalent of cash) (Nohira and Gulati, 1996; Bromiley, 1991; Beranek
et al., 1995; McMahon, 2006).
Financial slack resources play a critical role in precautionary
behavior, as due to its buffering function, financial slack determines the
business’ risk-response abilities, if we consider liquidity tensions. Facing
operating disruptions, the businesses may simply consume the holdings
of financial slack to safeguard financial liquidity and dismiss the threat
of bankruptcy (which was highlighted in Fig. 1).
In Fig. 2, we provide a conceptual model that could support the
analysis of risk preparedness driven by the buffering function of finan­
cial slack. The model merges two relevant dimensions of financial slack
holdings. The first dimension is the actual size of financial slack re­
sources as reflected by the holdings of liquid assets relative to total as­
sets. The second dimension is related to financial slack behavior –
accumulation or consumption. In the model presented in Fig. 2, the
highest degree of risk preparedness is attained by businesses that
demonstrate financial slack holdings above the average levels and at the
same time are distinguish by the ability to accumulate the financial slack
resources over time. Accordingly, the lowest degree of risk preparedness
is attained by entities that have relatively low (insufficient) slack
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International Journal of Hospitality Management 94 (2021) 102799
holdings and at the same time demonstrate continuous consumption of
existing financial slack holdings. The alternative situations (high hold­
ings – consumed or low holdings – accumulated) signal moderate levels
of risk preparedness (Fig. 2).
The model presented in Fig. 2 uses the traffic-light color system,
which is a common color code in the illustration of risk heat maps (Aven
and Renn, 2010). Thus, the orange or red zones signal low risk pre­
paredness and simultaneously a high degree of vulnerability to the
consequences of businesses’ operating discontinuity, such as the
liquidity tensions in the aftermath of the COVID-19 outbreak.
3. Research question development
It is beyond doubt that the COVID-19 outbreak and related lockdown
has led to sudden and unexpected disruptions in operating activity of
hospitality businesses worldwide. Thus, this exploratory study was
designed to examine the risk-preparedness of hospitality businesses,
driven by financial slack holdings and persistence, consistent with the
conceptual framework presented in Fig. 2. In this respect, this study
explores the employment of financial slack in the buffering function, as a
driver of precautionary behavior and as a relevant determinant of risk-
response abilities.
The first research question addressed in this exploratory work is the
following:
RQ 1. What is the degree of COVID-19 risk preparedness of hospi­
tality businesses, in terms of their financial slack holdings and
persistence?
This question is relevant, as the prior evidence on financial slack
holdings does not provide clear guidance on the optimal level of slack
and related slack behavior (accumulation or consumption). The reason
is that holdings of financial slack are regarded as costly, as liquid assets
are less productive (Opler et al., 1999), which is consistent with the
‘slack as inefficiency’ view. However, in the risk-preparedness context,
high financial slack is desirable due to its buffering function, which is
consistent with the ‘slack as a resource’ view.
The problem of the tradeoff between the costs and benefits (in this
buffering function) of liquid asset holdings (as financial slack resources)
has resulted in numerous studies that attempted to lay foundations for
theoretical and applicative concepts that could support setting the
optimal level of financial slack (Gentry, 1988; McMahon, 2006; Opler
et al., 1999). These attempts addressed a variety of perspectives, and
remained focused primarily on internally driven factors such as invest­
ment strategies, value creation abilities or conservatism of financial
policies (McMahon, 2006; Daniel et al., 2004). In this exploratory work,
however, we address two issues that are critical for the development of
efficient system intervention tools aimed at supporting the performance
of the hospitality industry in the aftermath of COVID-19 consequences:
businesses location and size. Thus, this study asks the second research
question:
RQ 2. Is the degree of financial-slack-driven COVID-19 risk pre­
paredness contingent on hospitality business’ location and size?
The business location (country) determines the most relevant drivers
of the business’ operating environment. The possible contingency be­
tween the level of risk preparedness (driven by financial slack holdings
and persistence) and business’ location is critical for the development of
adequate system intervention tools, adjusted to these country-specific
circumstances. The second item we address is the hospitality business’
size, as smaller companies are commonly regarded as more prone to the
negative consequences of any disruption. Thus, smaller businesses tend
to hold higher levels of liquid assets to smooth their cash flow volatility;
M. Wieczorek-Kosmala
Fig. 3. Design of empirical research.
there is empirical evidence in this regard (e.g., Ang, 1992; McMahon,
2006). The possible association between level of risk preparedness
(driven by financial slack holdings and persistence) and business size is
critical for tailoring the system intervention tools to the needs deter­
mined by the business’ scale of operating activity.
The third research question asked in this exploratory work addresses
the interplay between financial slack holdings and a business’ perfor­
mance. There is prior evidence that there is a direct association between
the size of slack holdings and return on assets (ROA) or return on equity
(ROE) (e.g., Smith and Kim, 1994, and Zahra, 1996), which suggests that
profitable firms tend to hold higher levels of financial slack. In other
words, profitable businesses are able to accumulate financial slack re­
sources over time. There is also strong evidence that there is a direct
association between the size of slack holdings and borrowing capacity,
captured by debt to assets ratios or liquidity ratios. Low borrowing ca­
pacity drives high financial constraints, and in these circumstances,
firms are more prone to hold higher financial slack resources (Acharya
et al., 2007). Driven by this empirical evidence, this study explores the
third research question:
RQ 3. Is the degree of financial-slack-driven COVID-19 risk pre­
paredness contingent on hospitality businesses’ performance?
This question is relevant, as the COVID-19 outbreak has resulted in
sudden discontinuity of hospitality businesses, impacting their ability to
generate funds internally and negatively influencing their ability to
obtain funds externally. The outbreak may also amplify the conse­
quences of low borrowing capacity. By addressing the association of
financial-slack-driven risk preparedness and the level of business prof­
itability and borrowing capacity, the findings may potentially support
the question on the desired duration of system interventions to be able to
efficiently smooth the liquidity tensions of hospitality businesses.
4. Research design and method
Guided by the research questions, we designed our research as a
gradual procedure, which is framed graphically in Fig. 3. First, we
clustered the hospitality businesses according to the degree of risk
preparedness (with reference to the size and persistence of their finan­
cial slack holdings). Secondly, we explored whether the attained degree
of risk preparedness is contingent on hospitality businesses location and
size. The third stage was designed to capture the associations between
the degree of risk preparedness and the performance of hospitality
businesses. As liquid assets holdings are the main construct that de­
termines the clustering scheme of risk preparedness, this stage was
supplemented by the exploration of the of associations between the
liquid assets holdings and the performance-related variables. Below we
explain in detail the specification of the variables critical at each stage of
this research procedure.
Financial slack holdings. To determine the financial slack holdings,
we followed the concept of slack as a resource (Bourgeois, 1981) in its
buffering function and ‘easy to recover’ approach (Bourgeois and Singh,
1983). The financial (available) slack is associated with uncommitted
resources that are maintained for immediate access. Thus, financial
slack resources are empirically identifiable through the analysis of liquid
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International Journal of Hospitality Management 94 (2021) 102799
Table 1
Financial slack holdings – specification of variables.
Variable Definition
LQ Liquid assets, equal to cash, cash equivalents and short-term
financial investments (financial items reported on the
balance sheet as a part of businesses’ current asset holdings),
as of the end of 2018
A assets in total, as of the end of 2018 (financial item reported
in the balance sheet)
financial slack holders, with high level of financial slack
hospitality businesses with high liquid asset holdings,
identified as those with LQ/A above the average:
High financial slack
LQ/A ≥ m,
where m denotes the mean value of LQ/A for the whole
sample (as of the end of 2018)
financial slack nonholders, but assumed to be those with
moderate level of financial slack hospitality businesses with
moderate liquid asset holdings, identified as those with LQ/A
Moderate financial below the average, but above the first quartile:
slack Q1 ≤ LQ/A < m,
where m denotes the mean value of LQ/A for the whole
sample (as of the end of 2018) and Q1 denotes the first
quartile of LQ/A for the whole sample (as of the end of 2018)
financial slack nonholders, with insufficient level of financial
slack hospitality businesses with insufficient liquid asset
holdings, identified as those with LQ/A below the first
insufficient financial quartile:
slack
LQ/A < Q1
where Q1 denotes the first quartile of LQ/A for the whole
sample (as of the end of 2018)
Table 2
Persistence of financial slack holdings – specification of variables.
Variable Definition
ΔLQ/A2017/2016 dynamics of the LQ/A ratio between 2016 and 2017
ΔLQ/A2018/2017 dynamics of the LQ/A ratio between 2017 and 2018
Financial slack accumulators (persistent growth of financial
slack holdings); hospitality businesses distinguished by the
Slack positive dynamics of an LQ/A ratio in two consecutive time
accumulators periods:
ΔLQ/A2017/2016 > 0 (+) and ΔLQ/A2018/2017 > 0 (− )
Inconclusive financial slack persistency; hospitality businesses
with volatile dynamics of an LQ/A ratio in two consecutive time
inconclusive periods:
ΔLQ/A2017/2016 < 0 (− ) and ΔLQ/A2018/2017 > 0 (+) or
ΔLQ/A2017/2016 > 0 (+) and ΔLQ/A2018/2017 < 0 (− )
Financial slack consumers (persistent consumption of financial
slack holdings); hospitality businesses distinguished by negative
Slack consumers dynamics of an LQ/A ratio in two consecutive time periods:
ΔLQ/A2017/2016 < 0 and ΔLQ/A2018/2017 < 0
asset holdings relative to assets (cash ratio) or alternatively by liquidity
ratios or cash-inflow-based ratios (Daniel et al., 2004). In this study, we
follow the first approach (cash ratio); we measure financial slack hold­
ings as the holdings of liquid assets (LQ) relative to total assets (A)
(Asimakopoulos et al., 2018; Combs and Ketchen, 1999; Bates et al.,
2009; Kim et al., 2011). Liquid assets comprise cash and cash equiva­
lents (held as short-term financial investments). Short-term investments
are regarded as a ‘storage’ of liquidity and typically reflect the holdings
of financial assets that could be easily and quickly converted into cash
(marketable securities).
To distinguish between financial slack holders and nonholders, we
compared the holdings of liquid assets relative to assets (as determined
by LQ/A ratio) to the benchmark level established as the mean value of
LQ/A for all companies included in the sample. This approach is justified
by the observations from prior research that have confirmed the industry
M. Wieczorek-Kosmala
Fig. 4. Matrix of the evaluation of the degree of risk preparedness (D_RP) –
specification of clustering scheme.
Source: Own study
Table 3
The performance characteristics of hospitality businesses – specification of
variables.
Borrowing capacity
CR Current ratio of financial liquidity, computed as current assets relative to
current short-term debt
D/A Debt to assets ratio, computed as long- and short-term debt, relative to total
assets
Profitability
ROA Return on assets, computed as net profit (loss) relative to total assets
ROE Return on equity, computed as net profit (loss) relative to equity
ROS Return on sales, computed as net profit (loss) relative to sales revenues
PA Productivity of assets, computed as total revenues relative to total assets
SR Sales revenues
Source: Own study based on Hales (2005) and Brigham and Ehrhardt (2011).
sensitivity to slack holdings (Berger and Offek, 1995; Subramaniam
et al., 2011). Accordingly, the mean value of liquid asset holdings
relative to total assets (LQ/A ratio) was used to identify the cluster of
hospitality businesses that can be distinguished by financial slack
holdings above the average. To identify a cluster of the businesses
distinguished by highly insufficient financial slack holdings, we addi­
tionally defined the bottom threshold equal to the first quartile of the
LQ/A ratio. All businesses captured in between are regarded as a cluster
of businesses of moderate financial slack holdings (see Table 1).
Financial slack persistence. To examine financial slack persistence,
we used the data on the dynamics of the LQ/A ratio over time. In gen­
eral, we classified as slack accumulators those businesses distinguished
by an increase of liquid asset holdings relative to total assets (positive
dynamics of LQ/A). However, to detect the persistence of financial slack
accumulation over time, we analyzed the dynamics of the LQ/A ratio
between 2016 and 2017 and between 2017 and 2018. Accordingly, if a
business was able to increase financial slack holdings in two consecutive
periods, it was assigned as a financial slack accumulator. In contrast,
businesses distinguished by the negative dynamics of financial slack
holdings (LQ/A) for two consecutive periods were classified as financial
slack consumers. All other businesses were classified as inconclusive, as
the direction of the dynamics of the LQ/A ratio was volatile in the two
consecutive periods (see Table 2).
Risk preparedness. Further, driven by the conceptual framework
presented in Fig. 2, we defined the clustering scheme for demarcating
between five degrees of risk preparedness (hereafter referred to as
D_RP), based on the message behind the possible combinations of
financial slack holdings and persistence. The details are presented in
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International Journal of Hospitality Management 94 (2021) 102799
Fig. 4. The cluster of very high (green zone) and high (yellow zone) risk
preparedness captures the hospitality businesses of high or moderate
financial slack holdings and slack accumulators or those with incon­
clusive persistence. The low (orange zone) or very low (red zone) clus­
ters of risk preparedness capture the businesses of insufficient or
moderate slack holdings combined with slack consumption or incon­
clusive slack persistence. The remaining combinations (amber zone)
capture the businesses of moderate risk preparedness.
Performance characteristics. Finally, to explore the associations
between the degree of risk preparedness and performance of hospitality
businesses, we examined the set of well-established financial ratios
(Table 3); see, for instance, (Vivel-Búa et al., 2018; Hales, 2005; Brigham
and Ehrhardt, 2011). We selected the financial ratios that are critical for
monitoring the changes of companies’ borrowing capacity and profit­
ability, as these aspects are the prime concerns in the aftermath of
operating discontinuity. In general, the borrowing capacity of the
business is primarily determined by its liquidity and solvency position.
Accordingly, to control liquidity, we employed the current ratio of
liquidity (CR), and to control solvency, we computed debt to assets ratio
(D/A). Businesses distinguished by high levels of liquidity (CR) and low
debt to assets ratios (D/A) demonstrate greater borrowing capacity
(Hales, 2005; Brigham and Ehrhardt, 2011). Profitability is measured
with three basic ratios of return: on assets (ROA), on equity (ROE) and
on sales (ROS), and by the analysis of the productivity of assets (PA). In
general, higher levels of profitability ratios demonstrate better perfor­
mance of the business (Hales, 2005; Brigham and Ehrhardt, 2011).
Additionally, we controlled the associations with sales revenues (SR), as
the decrease of sales remains the direct consequence of the operating
discontinuity.
Holdings and dynamics of liquid assets are critical constructs in the
clustering scheme for financial slack driven risk preparedness proposed
in this study. Thus, we supplemented the empirical analysis by exam­
ining the associations between liquid assets holdings (LQ/A) and
performance-related characteristics in the 2016–2018 time span. In this
aspect, we follow the methodological approaches of a wide body of
literature that aim at capturing the empirical determinants of cash ratio
(LQ/A) by performing regression (e.g. Ozkan and Ozkan, 2004). For
hospitality industry, regression for examining the determinants of cash
ratio was applied by Kim et al. (2011); Ahmad and Adaoglu (2018), or
recently Demir et al. (2019).
4.1. Data and sample selection
This exploratory study utilizes the data obtained from financial
statements of hospitality businesses provided in the EMIS database
(formerly known as ISI Emerging Markets, https://www.emis.com/).
The EMIS database collects the financial entries of businesses operating
in emerging markets, together with the major businesses’ demography
characteristics (in this size, sector and location).
From the EMIS database, we obtained the data on the performance of
the hospitality businesses operating in four countries: the Czech Re­
public, Hungary, Poland and Slovakia, to capture the country-effect. The
reasoning behind selecting these countries was their homogeneity and
comparability on several aspects relevant to this study. First, the Czech
Republic, Hungary, Poland and Slovakia successfully underwent the
process of transition from command to market economies and joined the
European Union in 2004. As the members of the Visegrad Group (V4),
these countries closely cooperate and are regarded as comparable on
numerous dimensions of their economic performance (Wyplosz, 2000).
Moreover, these countries are perceived as equally popular tourist des­
tinations (Krzesiwo et al., 2018), in particular for winter sports, moun­
tain walking and due to their historical heritage. Further, the percentage
M. Wieczorek-Kosmala
Fig. 5. The structure of sampled businesses by location (country) and size.
Fig. 6. Holdings of financial slack in the analyzed sample of hospitality businesses.
contribution of travel and tourism industry to GDP in these countries is
relatively comparable (see the data provided in Annex, Table A1).
Another reason for the exploration of hospitality businesses operating in
V4 countries is that these countries were hit by COVID-19-related re­
strictions at nearly the same time, with similar interventions taken
against the spread of the pandemic. The first COVID-19 infections were
confirmed between the 1st and 6th of March, which was followed by the
decision on border closures ca. 10 days later. In this respect, the hos­
pitality businesses operating in the sampled countries were affected by
the lockdown decisions and social distancing on a comparable scale. The
travel restrictions should be regarded as potentially harmful for the
hospitality industry in these countries, as the World Travel and Tourism
Council (WTTC, 2020) data for 2019 indicate a relative relevance of
international spending related to tourism and travel activities in each of
the sampled countries (54% in the Czech Republic, 76% in Hungary,
69% in Poland, and 51% in Slovakia).
From the EMIS database, we initially extracted data for all businesses
actively operating in the period 2016–2018, providing travelers’ ac­
commodations, lodging and other hospitality services (e.g., restaurants,
other travel arrangements and reservation services). Under this request,
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International Journal of Hospitality Management 94 (2021) 102799
we obtained 3290 observations (226 for the Czech Republic, 390 for
Hungary, 206 for Slovakia and 2468 for Poland). Data for 2018 were the
last obtainable entries. Thus, we assume that the situation observed in
2018 remained unchanged until the pandemic.
The obtained data were further verified to exclude all observations
with missing or biased entries (e.g., entries for which the basic verifi­
cation scheme for the balance between assets and liabilities was not
maintained). The number of missing or biased records was considerably
high in the subsamples of Czech and Polish hospitality businesses.
Finally, we obtained a sample of 1154 hospitality businesses for further
analysis of financial-slack driven risk preparedness (on non-parametric
level), with complete data on slack holdings and persistence. For the
empirical determinants of liquid assets holdings (cash ratio) we applied
data for 2016–2018 time span, which initially offered 3436 firm-year
observations. The descriptive statistics of the examined variables are
provided in Annex (Table A2).
The basic characteristics of sampled businesses, concerning size and
location, are presented in Fig. 5. To classify the businesses by their size,
we followed the scheme recommended by the European Commission
(2016) with respect to the number of employees. Accordingly, we
M. Wieczorek-Kosmala International Journal of Hospitality Management 94 (2021) 102799

Fig. 7. Persistence of financial slack holdings in the analyzed sample of hospitality businesses.

Fig. 8. The contingencies between slack holdings and slack persistence.

distinguished between four business size categories: micro (employment

up to 9 persons), small (employment between 9 and 49 persons), me­
dium (employment between 50 and 249 persons) and large (employ­
ment of 250 persons or more).

5. Results and discussion

5.1. Financial slack holdings and persistence

In the first stage of the empirical investigation, we conduct an entry

Fig. 9. Number of hospitality businesses assigned to given degree of risk
preparedness.
exploration of the sampled hospitality businesses with reference to their
financial slack holdings and behavior. On average, the sampled analyzed
hospitality businesses hold 17.07% of their total assets as liquid assets
(cash and cash equivalents), which is the mean value of the LQ/A ratio
as on 2018. Holdings of liquid assets at a level higher than average was
observed in 373 entities (nearly one-third of the analyzed sample,
32.3%), which defines the cluster of hospitality businesses with high
financial slack resources. In the analyzed sample, there were 288 entities

Fig. 10. Overall structure of the degree of risk preparedness of the examined hospitality businesses.

8
M. Wieczorek-Kosmala
Table 4
Results of Pearson’s chi-square tests (contingencies between the degree of
financial risk preparedness and businesses by location and size).
Degree of risk Pearson’s chi- Contingency Phi V-
preparedness and: square ratio Cramer
Location (country) 23.163** .140** .142** .082**
Size 7.652 .081 .081 .047
Notes: Statistically significant at **α = 0.01.
(25%) clustered as having insufficient slack holdings; their LQ/A ratio
was below ca. 2.08% (the first quartile). All other businesses (493, or
42.7% of the analyzed sample) were classified as having moderate
financial slack holdings. In Fig. 6, we illustrate these values by placing
the value of the LQ/A ratio for all observations, ranged from low values
(0%) to maximum (100%). In addition, in Fig. 6, we highlighted the
mean and first quartile of LQ/A as the demarcation zones.
To explore the financial slack behavior, in Fig. 7, we illustrate the
data on the dynamics of the LQ/A ratio for the analyzed sample of the
hospitality businesses between 2016 and 2017 and between 2017 and
2018. These data were used to cluster the analyzed hospitality busi­
nesses in three groups based on the observed persistence of financial
slack resources. In the analyzed sample of hospitality businesses, a
majority (621, which is 53.8% of the observations) were captured as
inconclusive, as the dynamics of liquid assets relative to assets was
switching from positive to negative (330; 28.6%) or from negative to
positive (291; 25.1%). However, the number of businesses identified as
slack consumers (172; 14.9%) was considerably less than the number of
businesses captured as slack accumulators (361; 31.3%).
5.2. Mapping the degree of risk preparedness (D_RP)
By combining the information on the size and persistence of slack
holdings, further analysis was directed toward assigning the sampled
hospitality businesses to the predefined clusters of risk preparedness.
Fig. 11. Structure of the degree of risk preparedness in the examined sample of hospitality businesses.
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International Journal of Hospitality Management 94 (2021) 102799
First, we analyzed the contingency between the size and persistence of
financial slack holdings. A detailed contingency table is presented in
Annex (Table A3). The Pearson’s chi-square test confirms that there was
a contingency between the holdings of financial slack and the level of
financial slack persistence (X2 = 35.067; p < 0.000). Data presented in
Fig. 8 indicate that in the group of businesses with high financial slack
holdings, the share of slack accumulators was visibly higher (41.8%)
compared to the businesses with moderate or insufficient slack holdings
(27.8% and 23.6%, respectively). This comparison clearly indicates that
a relatively high percentage of slack holders was constantly sourcing
their slack resources, by increasing the stock of liquid assets (relative to
assets in total).
Further, in accordance with the conceptual framework presented in
Fig. 2 and methodical assumptions in Fig. 4, we distinguished between
five clusters of financial-slack-driven risk preparedness, ranging from 1
(very low risk preparedness) to 5 (very high risk preparedness). In Fig. 9,
we provide the numbers of businesses captured in each of 9 possible
combinations of financial slack size and persistence, and their assign­
ment to the given cluster of risk preparedness. In Fig. 10, we graphically
illustrate a percentage structure of hospitality businesses assigned to a
given risk preparedness class. In Figs. 9 and 10, we follow the color code
consistent with the idea of heat map, moving from green (high risk
preparedness), through yellow, amber, orange to red (low risk
preparedness).
This evidence suggests that the overall degree of COVID-10 risk
preparedness of the examined hospitality businesses should be judged as
relatively low (RQ1). The data clearly indicate that nearly 25% of the
examined hospitality businesses fall into the cluster of very low or low
risk preparedness, suggesting that one-quarter of the examined busi­
nesses are highly exposed to immediate liquidity tensions and a bank­
ruptcy threat. The following 34% of the investigated sample was
captured as having moderate risk preparedness. These businesses are
also prone to liquidity tensions, as their financial slack holdings are
either insufficient or recently highly consumed. A relatively positive
observation is that nearly 40% of the examined businesses were
M. Wieczorek-Kosmala International Journal of Hospitality Management 94 (2021) 102799

Fig. 12. Mean ranks of Kruskal-Wallis test for risk preparedness and selected performance characteristics of sampled hospitality businesses.
Notes: Statistically significant at ***α = 0.001; **α = 0.01; *α = 0.05

Table 5
The results of the Kruskal-Wallis test (degree of risk preparedness and performance characteristics).
Degree of risk preparedness (D_RP) Performance characteristics

D/A CR ROE ROA ROS PA SR

p-values of Kruskal-Wallis test 0.015* 0.000*** 0.001** 0.000*** 0.000*** 0.000*** 0.625
p-values of pair-wise comparisons
VH-H 0.298 0.045* 1.000 0.002** 0.319 0.015*
VH-M 1.000 0.000*** 1.000 0.000*** 0.723 0.000***
VH-L 0.012* 0.000*** 0.012* 0.000*** 0.000*** 0.000***
VH-VL 1.000 0.000*** 0.062 0.000*** 0.001** 0.000***
H-M 1.000 0.000*** 1.000 0.473 1.000 0.000***
H-L 1.000 0.000*** 0.069 0.000*** 0.004** 0.000***
H-VL 1.000 0.000*** 0.258 0.007** 0.087 0.000***
M-L 0.116 0.000*** 0.014* 0.002** 0.000*** 0.000***
M-VL 1.000 0.000*** 0.129 0.177 0.031* 0.055
L-VL 1.000 0.580 1.000 1.000 1.000 1.000

Notes: VH – very high risk preparedness (green zone); H – high risk preparedness (yellow zone); M – moderate risk preparedness (amber zone); L – low risk pre­
paredness (orange zone); VL – very low risk preparedness (red zone); Statistically significant at ***α = 0.001; **α = 0.01; *α = 0.05.

Table 6
Rho-Spearman correlation coefficients.
D_RP D/A CR ROE ROA ROS PA SR

D_RP 1 − .070* .375*** .105*** .247*** .151*** .379*** .005

D/A 1 − .482*** − .290*** − .320*** − .359*** .103*** .034
CR 1 .204*** .301*** .248*** .124*** .021
ROE 1 .788*** .863*** .036 .461***
ROA 1 .862*** .291*** .186***
ROS 1 .015 .191***
PA 1 .103***
SR 1

Statistically significant at ***α = 0.001; **α = 0.01; *α = 0.05.

captured as having good or very good risk preparedness. These busi­
nesses have maintained some flexibility during the period of operating
discontinuity, as they possessed financial slack resources that could
temporarily smooth the emerging liquidity tensions.
5.3. Risk preparedness and hospitality businesses’ location and size
We further explored the contingencies between the businesses’ de­
gree of risk preparedness and their location (country of operating ac­
tivity) and size to address the second research question asked in this
study (RQ2). The data presented in Table 4 indicate that weak but sta­
tistically significant contingencies were observed between the degree of
risk preparedness and businesses location but not their size (the Pear­
son’s chi-square test). The detailed contingency tables are presented in
Annex (Table A4) and summarized in Fig. 11. In general, the percentage
share of the hospitality businesses with high or very high risk pre­
paredness remains comparable if we consider business size (Panel B).
However, the cross-country comparisons clearly indicate that the
percentage of businesses captured as having very low or low risk pre­
paredness was relatively lower in the Czech Republic and Hungary, in
comparison to Poland or Slovakia (Panel A).
5.4. Risk preparedness and the hospitality businesses’ performance
To address the third research question asked in this study, we first
explored the associations between the degree of risk preparedness (as a
qualitative state) and hospitality businesses’ performance, by running
non-parametric ANOVA (Kruskal-Wallis test) and establishing Rho
Spearman correlations.
The Kruskal-Wallis test indicates that hospitality businesses captured
in a given cluster of risk preparedness differed significantly on level of
liquidity (the current ratio value). A closer analysis of mean ranks of the
Kruskal-Wallis test (presented in Fig. 12) confirms that the businesses
captured as having a higher degree of risk preparedness are distin­
guished by having better liquidity. This observation is also confirmed by
the Rho Spearman correlation coefficient (Table 6). With reference to

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M. Wieczorek-Kosmala International Journal of Hospitality Management 94 (2021) 102799

Table 7
Pearson correlation coefficients.
LQ/A D/A CR ROE ROA ROS PA SR

LQ/A 1 − .034* .430*** 0.030 0.005 0.023 .488*** − 0.011

D/A 1 − .409*** − 0.012 − .095*** − 0.033 .295*** − 0.027
CR 1 0.021 0.023 0.012 − 0.002 − 0.033
ROE 1 − 0.020 0.004 0.028 0.011
ROA 1 .053** 0.010 0.011
ROS 1 .036* .047**
PA 1 .049**
SR 1

Notes: the performance characteristics in natural logarithm.

Statistically significant at ***α = 0.001; **α = 0.01; *α = 0.05.

cash ratio determinants for US hospitality industry, we applied WLS

Table 8
(weighted last square) regression as it can properly handle the problem
WLS regression model for determinants of liquid assets holdings.
of heteroskedasticity in cross-firm regressions. By applying the
Variables B Coefficient Beta t- Significance VIF Breusch-Pagan test, we confirmed the heteroskedasticity (p < 0.000).
Coefficient Statistic
Prior to estimating the WLS regression model, we established the
Constant − 1.128 *** − 6.397 .000 pair-wise Pearson correlations between the variables (see Table 7).
CR .097 *** .380 30.525 .000 1.218
In general, liquid assets holdings (LQ/A) is positively correlated with
D/A .148 *** .580 47.722 .000 1.164
ROE .024 .017 1.538 .124 1.003
productivity of assets (PA) and current ratio of liquidity (CR), and
ROA .259*** .063 5.574 .000 1.018 negatively correlated with debt to assets ratio (D/A), which is consistent
ROS .011 *** .047 4.080 .000 1.039 with the prior observations on the relationships between degree of risk
PA .099 *** .333 26.784 .000 1.215 preparedness and the performance characteristics on non-parametric
SR .003 *** .055 4.611 .000 1.104
level.
Observations = 3436
Adjusted R-square = 0.584 Table 8 provides the results of WLS regression for the performance
Model F = 657.421 *** characteristics as the determinants of liquid assets holdings in hospi­
Durbin-Watson statistic = 1.912 tality businesses. The adjusted R-square value indicates that the model
Notes: The dependent variable LQ/A; all variables in natural logarithms. explains about 58,4% of the variation of liquid assets holdings in hos­
Statistically significant at ***α = 0.001. pitality businesses. Following Kim et al. (2011) we performed two
diagnostic tests to ensure there is no multicollinearity in our WLS
the D/A ratio, the statistically significant differences were confirmed regression model (VIFs < 10) and no autocorrelation which may occur
only between the businesses of very high (green zone) and low (orange with cross-time observations (Durbin-Watson statistics of 1.912. which
zone) risk preparedness (with higher levels of D/A ratio observed in the indicates no serial correlation zone).
cluster of low risk preparedness, which is consistent with the negative In general, the results of WLS regression are consistent with prior
direction of Rho Spearman correlation coefficient for these variables. observations that businesses of higher profitability tend to hold more
The data presented in Table 5, indicate also that the hospitality liquid assets. The sales-related characteristics (SR, PA, ROS or ROA)
businesses captured in a given cluster of risk preparedness degree exert a positive impact on liquid assets holding in our model. This
differed significantly on their profitability – in particular, on return on confirms that the sudden decline of sales revenues in the aftermath of
assets (ROA), return on sales (ROS) and productivity of assets (PA). In pandemic may result in the inability to source the liquid assets holdings.
the case of return on equity (ROE), statistically significant differences There is also a relationship between the level of liquidity (CR) and liquid
were observed only between the businesses of very high and low, and of assets holdings, that suggests that the greater liquidity and the related
moderate and low risk preparedness. The analysis of mean ranks of the borrowing capacity is stronger in hospitality businesses that distinguish
Kruskal-Wallis test (Fig. 12) indicates that the businesses of a greater with higher liquid assets holdings. The model found a positive associa­
degree of risk preparedness are distinguished by a higher level of returns tion between the debt to assets ratio (D/A) as another indicator of
or productivity of assets. The direction of these associations is also borrowing capacity, which suggests that more financially constrained
confirmed by the Rho Spearman correlations (Table 6). As it can be seen companies tend to hold more liquid assets. This is consistent with prior
in Table 6, there is no correlation between degree of risk preparedness observations by Ferreira and Vilela (2004), although the literature evi­
and sales revenues. However, the remainder profitability characteristics dence is inconclusive (Demir et al., 2019).
(return ratios ROE, ROA and ROS and productivity of assets in partic­
ular) are positively associated with risk preparedness, which indicates 6. Concluding remarks
an indirect impact of the loss of customers and the related loss of sales
revenues. This study was designed to explore the degree of hospitality busi­
In general, the results of nonparametric ANOVA show that hospi­ nesses’ risk preparedness for the consequences of COVID-19. The hos­
tality businesses captured as having a greater degree of risk prepared­ pitality industry is undoubtedly one of the most severely affected by the
ness are distinguished by having better profitability and greater coronavirus pandemic, as due to the system interventions taken against
borrowing capacity (in particular, financial liquidity) positions. How­ the spread of the disease, hospitality businesses were exposed to the
ever, the long persistence of the COVID-19 outbreak consequences may severe consequences of operating discontinuities. This study explored
lead to an evaporation of this advantage. Due to the loss of customers these consequences from risk and financial management points of view
and related cash inflows, the storage of financial slack resources may by focusing on liquidity tensions in the aftermath of customer outflows
also dry up in the better-situated hospitality businesses. and the related ability to sustain this critical situation and successfully
Liquid assets holdings are a main construct in the proposed clus­ recover from disruptions. The investigations explored the hospitality
tering scheme of mapping hospitality businesses risk preparedness. In businesses’ risk preparedness as driven by financial slack holdings and
this respect, we additionally examined the determinants of liquid assets persistence. The analysis has led to several conclusions that may
holdings as cash ratio (LQ/A). Following Kim et al. (2011) who studied potentially support the design of effective system interventions, as well

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M. Wieczorek-Kosmala International Journal of Hospitality Management 94 (2021) 102799

as to enhance better managerial decisions on response and recovery revenues. In this respect, the managers of the currently relatively well-
routes. suited businesses need to demonstrate prudential approach in their de­
cision making.
6.1. Policy implications

Using sample data from hospitality businesses operating in four 6.3. Limitations and further research
central European countries (Czech Republic, Hungary, Poland and
Slovakia), the exploration has shown that the degree of financially The main limitation of this study is that due to the nature of the
driven risk preparedness is relatively low. The empirical analysis has explored dataset, it reviews the risk preparedness observed at a single
confirmed that a low or very low level of risk preparedness was observed time point (end of 2018). This limitation has required the assumption
in the cases of approximately 25% of the analyzed hospitality busi­ that the contingencies observed as of the end of 2018 remained un­
nesses. These data indicate that one-fourth of the businesses are unable changed in the pre-COVID-19 period (end of 2019). Thus, further
to sustain the immediate liquidity tensions that emerged shortly after empirical investigations are required to confirm these observations as
the COVID-19 outbreak and thus are highly prone to bankruptcy. the data for 2019 are obtainable.
Moderate risk preparedness was observed in the case of a further 34% of Another limitation of this study is the sample that explored the sit­
the examined businesses. Thus, in general, nearly 60% of the examined uation of hospitality businesses operating in four central European
businesses are vulnerable to the consequences of operating disruptions. countries (Czech Republic, Hungary, Slovakia and Poland). Although
This empirical evidence shows that there is an urgent need to implement the sample is homogeneous in the aspects relevant to this study, further
hospitality industry-tailored solutions that could prevent consequences inquiries will be made to verify the financial-slack-driven risk pre­
from the liquidity shortfalls. paredness of hospitality businesses operating in other countries (in
This empirical evidence has shown that the degree of financial-slack- particular, those where the hospitality industry significantly contributes
driven risk preparedness of the examined hospitality businesses was to the economy). The methodological approach developed in this study
contingent on businesses location. It suggests that the design of system is supportive in this respect.
interventions directed at smoothing the liquidity tensions in the hospi­ The findings of this exploratory work are also relevant for further
tality industry should be adjusted to the country-specific circumstances. inquiries addressing the details of system intervention mechanisms
The analysis performed in this study also indicates that the degree of risk directed at limiting the negative consequences of the COVID-19
preparedness is not contingent on the hospitality businesses’ size. Thus, pandemic. Shortly after the COVID-19-related lockdown, the govern­
possible intervention mechanisms should be equally weighted for all ments of some countries have implemented measures aimed at sup­
businesses, regardless of their size. These findings also indicate that the porting entrepreneurs in mitigating the economic impact of the
liquidity tensions faced by hospitality businesses in the aftermath of the pandemic by addressing possible liquidity tensions. These measures
COVID-19 pandemic may potentially hit businesses of different size on a embraced various solutions that support the maintenance of employees,
similar scale. loan instruments, deferral of loan repayments, and the release of taxa­
tion and social security obligations. However, there is a need to verify
6.2. Managerial implications whether these overall intervention mechanisms were designed appro­
priately to meet the specific situation of hospitality industries, including
The study resulted in some observations relevant from the manage­ in the temporal dimension.
rial perspective. In general, it was found that businesses captured as This exploratory study also provides background for further research
having a higher degree of risk preparedness were distinguished by endeavors directed at a detailed analysis of the actual situation in the
having better profitability and borrowing capacity (in particular, post-COVID-19 reality. In particular, further research will inevitably
liquidity position). These findings suggest that the businesses that revise the scale of bankruptcy waves of hospitality businesses as
currently demonstrate low and very low risk preparedness for sustaining liquidity tensions potentially emerge as one of the leading drivers.
the COVID-19 outbreak are far more exposed to the consequences of Moreover, by revising the situation of the hospitality businesses that
customer outflow (and the associated decrease in related revenues and were able to survive the COVID-19 consequences, in comparison to the
profits) and the intensification of existing liquidity tensions. Managers disrupted ones, further studies may address the drivers of the successful
who identify their individual businesses as of low risk preparedness recovery paths.
should demonstrate a greater concern over controlling their operating
costs and anticipating the potential difficulties in obtaining additional Acknowledgements
funding, if constrained. In these circumstances, managers should care­
fully consider the available system-level aid that could enhance the I gratefully acknowledge the insightful remarks and comments pro­
sustainability of their businesses. Finally, as particularly exposed to the vided by the anonymous Reviewers and the Editors of the Special Issue.
bankruptcy threat, these businesses shall tightly monitor the innovations
implemented by their competitors, to diminish the scale of customers
Appendix A
outflow.
Facing the indecisive persistence of the COVID-19 pandemic, the
situation may also significantly worsen in the group of hospitality
businesses that currently demonstrate a relatively high or very high level
of financial-slack-driven risk preparedness, as the COVID-19 pandemic Table A1
is very influential on profitability and borrowing capacity. In this Contribution of travel and tourism industry to GDP in the examined countries.
respect, the managers of the hospitality businesses that were able to Country Direct contribution to GDP in real Percentage share in
safeguard the buffer of liquid assets shall be aware of the fragility of prices (USD bn) GDP
their competitive advantage. We observe that the countries manage with 2016 2017 2018 2016 2017 2018
the persistence of pandemic, demonstrated by the consecutive waves of
Hungary 3.25 3.33 3.43 2.58 2.58 2.54
growing number of infections, by imposing some restrictions that affect Czech Republic 5.36 5.60 5.72 2.45 2.42 2.41
the performance of hospitality industry. This study has shown that the Poland 9.51 10.15 10.51 1.89 1.93 1.92
restoration of slack holdings is particularly associated to the profitability Slovakia 2.36 2.46 2.57 2.53 2.56 2.59
or productivity of assets, which is driven by the ability to generate sales Source: Own study based on dataset provided by the World Bank (2020).

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M. Wieczorek-Kosmala International Journal of Hospitality Management 94 (2021) 102799

Table A2
Descriptive statistics of the examined variables.
LQ/A D/A CR ROE ROA ROS P/A SR

Minimum 0.0000 0.0000 0.0000 − 113.0000 − 25.8824 − 48.3810 0.0010 0.0100

Maximum 1.0000 31.9231 402.0000 16.4375 120.0000 20.0000 71.0000 127.6200
Mean 0.1652 0.7259 2.4768 0.0906 0.0576 − 0.0167 1.4598 2.5251
Median 0.0736 0.5397 1.0000 0.0732 0.0246 0.0398 0.5155 0.9900
St. Dev. 0.2116 1.5391 10.3374 2.2563 2.1257 1.3589 2.6818 6.2494
Variance 0.0448 2.3687 106.8621 5.0910 4.5184 1.8465 7.1921 39.0547
Skewness 1.8175 12.9660 26.4380 − 38.2458 51.7907 − 16.3740 10.4967 9.8745
Kurtosis 2.9421 209.7675 885.3798 1879.7500 2960.1216 573.5353 217.6102 138.2221
N 3436 3436 3320 3387 3436 3436 3436 3436

Notes: Descriptive statistics for variables as on 2016–2018 time span.

Table A3
Contingencies between financial holdings and persistence.
Persistence of financial slack Size of financial slack holdings In total
holdings
High Moderate Insufficient

41 72 59 172
Consumers 23.8% 41.9% 34.3% 100.0%
11.0% 14.6% 20.5% 14.9%
176 284 161 621
Inconclusive 28.3% 45.7% 25.9% 100.0%
47.2% 57.6% 55.9% 53.8%
156 137 68 361
Accumulators 43.2% 38.0% 18.8% 100.0%
41.8% 27.8% 23.6% 31.3%
373 493 288 1154
In total 32.3% 42.7% 25.0% 100.0%
100.0% 100.0% 100.0% 100.0%

Table A4
Contingencies between financial slack persistence and businesses’ location and size.
Risk prepared-ness Country Size In total

CZ HU PL SLO micro small medium large

2 9 35 13 11 18 20 10 59
Very low 3.4% 15.3% 59.3% 22.0% 18.6% 30.5% 33.9% 16.9% 100.0%
3.8% 2.5% 6.3% 7.0% 4.9% 4.0% 6.2% 6.3% 5.1%
6 60 117 50 51 92 63 27 233
Low 2.6% 25.8% 50.2% 21.5% 21.9% 39.5% 27.0% 11.6% 100.0%
11.5% 16.6% 21.1% 27.0% 22.6% 20.5% 19.6% 17.1% 20.2%
22 136 178 57 76 148 115 54 393
Moderate 5.6% 34.6% 45.3% 14.5% 19.3% 37.7% 29.3% 13.7% 100.0%
42.3% 37.6% 32.1% 30.8% 33.6% 33.0% 35.7% 34.2% 34.1%
15 106 146 46 54 130 87 42 313
High 4.8% 33.9% 46.6% 14.7% 17.3% 41.5% 27.8% 13.4% 100.0%
28.8% 29.3% 26.3% 24.9% 23.9% 29.0% 27.0% 26.6% 27.1%
7 51 79 19 34 60 37 25 156
Very high 4.5% 32.7% 50.6% 12.2% 21.8% 38.5% 23.7% 16.0% 100.0%
13.5% 14.1% 14.2% 10.3% 15.0% 13.4% 11.5% 15.8% 13.5%
52 362 555 185 226 448 322 158 1154
In total 4.5% 31.4% 48.1% 16.0% 19.6% 38.8% 27.9% 13.7% 100.0%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

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