ADDIS ABABA UNIVERSITY

College of Business and Economics

Department of Accounting and Finance

THE IMPACT OF COVID-19 PENDAMIC ON THE FINANCIAL PERFORMANCE OF

THE HOTEL INDUSTRY

By Hawi Derebssa, GSR/9584/13

A Research Proposal submitted to the Course Instructor in partial fulfillment of the

requirements for the Course ACFN-Acc 822: Advanced Financial Accounting Theory

June, 2021
Addis Ababa University

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Table of Contents
Abstract.......................................................................................................................................................3
1. Introduction.........................................................................................................................................4
1.1. Background of the Study..............................................................................................................4
1.2. Statement of the Problem...........................................................................................................5
1.3. Purpose of the Study...................................................................................................................7
1.3.1. General Objective of the Study............................................................................................7
1.3.2. Specific Objective of the Study............................................................................................7
1.4. Research Questions.....................................................................................................................7
1.5. Delimitation of the study.............................................................................................................8
2. Review of related Literature................................................................................................................8
2.1. Theoretical overview...................................................................................................................8
2.2. Empirical Overview......................................................................................................................9
2.3. Conceptual Framework..............................................................................................................11
3. Research Design and Methodology...................................................................................................11
3.1. Research Design.........................................................................................................................11
3.2. Population, Sample size and Sampling Technique.....................................................................12
3.2.1. Population and Sampling Frame........................................................................................12
3.2.2. Sample Size........................................................................................................................12
3.3. Data Collection..........................................................................................................................12
3.4. Data Analysis..............................................................................................................................13
4. Significance of the Study....................................................................................................................13
5. Expected Result.................................................................................................................................14
6. Timeline of the Research...................................................................................................................14
Reference..................................................................................................................................................15

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Abstract
The world has been facing different natural and man-made crisis the most recent one beiong,

COVID-19 pandemic reshaping the world economy and the lives of people across the entire

world. In the wake of the novel coronavirus pandemic, both regulators and financial institutions

are steering through unchartered waters. As one of the countries affected by the COVID-19

pandemic, Ethiopia took several steps to keep COVID-19 infections low and mitigate its

economic impact; it is still severely affected by the virus. Among the sectors hit by the crisis of

the pandemic the tourism sector has been hit the hardest. As one of the major elements of the

tourism sector the hotel industry has been severely affected by the pandemic and still continues

to be. Hence this research will assess the impact of COVID-19 on the financial performance of

the hotel industry. To explore the impacts of the COVID-19 pandemic on Ethiopia's hotel

industry and inform interventions and policy responses for present relief and future mitigation

process, the study will employ Paired sample t-test and financial ratio analysis (FRA) as well as

different regression models. The purpose of the research is to analyze the significant financial

performance before and after the Corona Virus Pandemic. The variables that will be used to

assess the effect of the pandemic on the financial performance of the hotel industry are: 1)

Solvency, 2) liquidity level3) total asset turn over ratio, 4) revenue per available room with

recognized impairment so far. The researcher will assess the effect of the pandemic and

recommend further mitigation strategies that will revive the economy of the hotel industry.

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 1. Introduction
The research proposal includes Background of the Study, Statement of the problem, purpose of
the study, hypothesis of the study, significance of the study, delimitation of the study, limitation
of the study, review of literature review, research methodology, and expected result.

1.1. Background of the Study

The world has faced many challenges globally and will continue to face natural and man-made
disasters. COVID-19 pandemic is the most recent crisis to affect the world as one. The
coronavirus (COVID-19) was first spotted in China, Wuhan city, December 2019 to then unfold
to Hubei Province, which then spread to different countries before the world organization
declared it as a pandemic, The World Health Organization declared the outbreak a Public Health
Emergency of International Concern on 30 January 2020, and a pandemic on 11 March 2020.
Every country has been affected by the pandemic even though the severity differs from country
to country. Governments have been taking measures to restrict movement of their citizens in
order to mitigate the spread of the virus. According to the forecast made by World Tourism
Organization(UNWTO) there will be 1 billion fewer international tourist arrivals, loss of US$
1.3 trillion in total export revenues from international tourism and 100 to 120 million direct
tourism jobs at risk. According to recent data compiled by UNWTO in 2020 there were 52
million fewer travelers, which show a decline of 72% tourist arrivals in Africa and a decline of
71% in sub-Saharan countries specifically. The decline in tourism affects many sectors from the
airline sector to small businesses that are cultural artifact sellers. But the industry that is affected
primarily both by the decrease in tourism as well as the increase in infections nationally is the
accommodation or hospitality industry.

Tourism industry comprising of travel and transportation services, recreation and entertainments,
food and beverage services has contributed significantly to the economic stability through
increase in foreign exchange earnings, increased government revenues and employment of large
number of citizens. Just like other countries Ethiopia is also one of those countries that is
affected by the tourism industry. Ethiopia is an Eastern African country with the home of 14
natural, cultural and mixed property heritages registered on UNESCO which spreads all over the
whole country, and has great potential to develop itself as a tourist destination (MOCT 2016). A

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local and international restriction of movements leads to downfall of country’s business
generating industries like tourism and hospitality which includes accommodation sector.

In 2018 Ethiopia’s tourism and travel economy showed a significant growth by 48.6%, it
contributed 7.4 billion a growth of 2.2 billion from previous year. But the unprecedented change
due to COVID-19 has resulted in the loss of 1/3 of the country’s income from tourism.
Accordingly, 2.071 million USD has been generated and some 541,000 international tourists
have visited the country last fiscal year amid the COVID-19 pandemic. As a critical player in
the tourism industry, the hotel industry, due to its own nature and business model that is based on
the free movement of people around the globe it has been one of the most negatively impacted
economic sectors. The restriction of movement hence has affected the ability of these hotels to
generate revenue, that has affected their financial performance. In this context, it becomes
fundamental for hotel industry stakeholders to measure the economic impact directly attributable
to the COVID-19 pandemic in the hotel industry along with the effect that economic policies
may have in supporting the industry ( Torrel, Alarcon, and Perrez, 2020).

1.2. Statement of the Problem

The overall macroeconomic impact of COVID-19 will be severe and could have long-lasting
consequences on human development; protecting expenditure on social sectors is therefore
crucial. Although the COVID-19 epidemic is a medical crisis that is putting the capacity of the
healthcare system to the test, it has affected all sectors. The pandemic has reshaped the global
economy and daily lives of people across the world. Due to the restrictions and closing of the
borders the tourism industry has faced high decline worldwide. Following a difficult end to 2020,
global tourism suffered further setbacks in the beginning of the year as countries tightened travel
restrictions in response to new virus outbreaks. According to the latest edition of the UNWTO
World Tourism Barometer, all world regions continued to experience large drops in tourist
arrivals in the first month of the year. Mandatory testing, quarantines, and in some cases the
complete closure of borders, have all hindered the resumption of international travel. Even
though vaccines have been distributed widely it still has not been enough to reach the global
community as a whole. In a world with a population of over 7.6 billion the number of people that

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have been administered is just over a billion. In addition to this there is different strip of the virus
currently being experienced around the world. The shortage of the vaccine and the new strips of
the virus have still made it difficult for travellers and tourists to have confidence. This restriction
of movement has led to a significant decrease in tourism.

The tourism industry affects number of other business like the food and beverage industry, travel
and transport industry, as well as the hotel industry. For most countries tourism industry is a
major source of foreign exchange, and the hotel industry as one of the elements of tourism has
also been affected by the pandemic. The hotel industry is dealing with an unprecedented crisis
due to the disruption caused by the global COVID-19 pandemic. When looking at tourism it is
important to consider the term hospitality. Some define hospitality as “the business of helping
people to feel welcome and relaxed and to enjoy themselves.” Simply put, the hospitality
industry is the combination of the accommodation and food and beverage groupings, collectively
making up the largest segment of the industry. Hence as the major element of the hospitality
industry, the hotel business has been hit the hardest. Some recent papers already analyzed
different aspects of the Covid-19 disaster in the tourism industry. These articles focus on
modifications in the services that hospitality firm’s offer, also on the global effects on the
tourism industry and on the initial effects on the demand of tourism services using a general
equilibrium model. Some articles also discuss how research in tourism should analyze the Covid-
19 crisis, demanding deeper analyses.

Latest report of World Travel and Tourism Council’s (WTTC) on Ethiopia’s Travel and Tourism
with reference to financial gain revenue tourists 77% came from international travellers and 23%
from domestic travellers( of these 79% is for leisure activities and 21% from is from
international and national meetings). The hotel industry accounts to 7% if total employment in
the country. To mitigate and minimize the damage the Ethiopian government has allocated 3.3
billion birr to the tourism industry. The vision of Ethiopia according to the Ministry of Culture
and Tourism is to become among the top five tourist destinations by 2025. The recent
constructions of different parks in Addis Ababa and the rest of Ethiopia are in line with these
national goals. As the major element of the tourism industry it is evident to analyze the risk
preparedness of hospitality businesses, as driven by the financial slack holdings and persistence.

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According to WHO this type of crisis will not be the last to occur hence every industry should
take lesson by the impact of the pandemic and the measures taken and what could have been
done too minimize the effect of the pandemic. Having a policy ready for these types of crisis will
help mitigate calmly for the future.

Analyzing the financial performance of the hotel sector will enhance stakeholder’s decision
making ability by showing the past trends and risks of the hotel industry. By comparing past
performance and the effect of the pandemic on those trends will enable policy makers as well as
shareholders to see what is to come in the near future as well. Hence this paper will analyze the
impact of COVID-19 on the financial performance of the Hotel industry.

1.3. Purpose of the Study

1.3.1. General Objective of the Study
The purpose of the study is to assess the impact of COVID-19 on the financial performance of
the hotel industry.

1.3.2. Specific Objective of the Study

In line with the general objective of the study the following specific objectives will be
addressed:
 To measure the impact of the pandemic on the liquidity of the hotel sector.
 To evaluate the impact of COVID-19 on the solvency ratio of the hotel industry
 To assess the impact of the virus on the total-asset turnover ratio of the hotel industry
 To evaluate the impact of the pandemic on the revenue per room of the hotel industry.

1.4. Research Questions

The main aim of the study is to assess the impact corona virus had on the financial performance
of the hotel industry by answering the following questions:

I. How has the corona virus affected the liquidity of the hotel industry?
II. How has the pandemic impacted the total asset turnover ratio of the hotel industry?
III. What is the impact of the corona virus affected the solvency ratio of the hotel
industry?
IV. What is the impact of the pandemic on the revenue per room of the hotel industry?

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 1.5. Delimitation of the study

The scope of the study will cover the pre-pandemic period from 2018-2019 and the period the
world is in now during the pandemic period 2020-2021. By addressing the pre-pandemic period
the researcher can show the impact of the pandemic on the financial performance of the hotel
industry. The annual audited reports as well as other secondary reports will be assessed to show
the real significance of the pandemic on the financial performance of the hotels. The hotels that
are located within Addis Ababa and are chains of international hotels will be addressed in the
research. Accordingly seven hotels will be the center of analysis in order to achieve the research
objective. These hotels have been selected as they are tourist attractions.

2. Review of related Literature

2.1. Theoretical overview

Martinsons and Davison (2007) claimed that two of the most significant influences on decision-
making are values and cognitive perception. Both depends on how a decision maker will
interpret and respond to a stimulus and sets of conditions. In the context of this paper, decision-
making is highlighted in terms of information obtained by the potential investors in their
decision-making processes with respect to financial ratio analysis. More importantly,
understanding the usefulness of disclosed financial ratios in the annual reports based on the
suggestion of previous studies makes the study necessary (Aripin, Ho, & Tower, 2014).

Financial ratio is a widely-used tool of financial analysis, the use of financial ratios to interpret
financial statements provides a quick indication of a firm’s performance and financial position to
different users of the financial statement (Abdul-Baki, Uthman, & Sanni, 2014). Financial ratios
analysis can offer the comprehensive information needs of the investors in response to the single
person theory of accounting as proposed by scholars as against the normally produced multiple
purposes financial accounting annual reports. In other words, financial ratio analysis is intended
to meet the specific needs of all potential investors who require additional comprehensive
accounting data (Brearey, 2013; Barth and Landsman, 2010).

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2.2. Empirical Overview

There are a number of articles that assess the performance of hotels with crisis, but the
magnitude of COVID 19 pandemic on the global economy and the effect on the daily lives of
people has been an interest to many researchers. Accordingly the researcher will show a number
of articles that have addressed the impact of the pandemic on the performance of the hotel
industry.
2.2.1. The impact of COVID-19 on hotel performance: Evidence from a Difference-in-
Differences approach ( July 2020) by Polemis, Michael

This research was made in Italy and Turkey which are the top tourist destinations. This study
aimed to focus on the impact of the national lockdown on hotel performance, in one of the most
prevalent tourism destination (Italy). The sample used in their research is an unbalanced daily
panel data set comprising of 5 cross-section units based on the hotel classes (luxury, midscale,
upper midscale, upper-upscale, upscale), over the period 30.5.2019 to 18.5.2020. The closing
date denotes the termination of the national lockdown measure. The sample was drawn from the
well-established hotel database (Smith Travel Research). For this purpose, a difference-in-
differences (DID) methodology is employed to compare the performance of the hotel industry in
Italy and Turkey during the post-treatment period (e.g. after the national lockdown in Italy). The
empirical findings reveal that the national lockdown adopted by the Italian government to stem
the COVID-19 spread mitigated the level of hotel performance by 68% on average. The article
used two alternative hotel performance indicators namely occupancy and revenue per available
room to test the robustness of their findings.
2.2.2. Financial distress in the hospitality industry during the Covid-19
disaster (February 2021) by Rafel, Alfredo, and Bartolom´e

This paper is also done in one of the top tourist destinations Spain and Portuguese hospitality
firms. The article made a deep analysis of the role of the financial strength of firms in the
hospitality industry to survive the disaster period. The purpose of this article is to quantify how
different dimensions of financial strength contribute to the survival of hospitality firms, and also
to quantify the magnitude of the disaster in terms of the number of otherwise profitable firms
which may default without a proper injection of financial resources.

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The researchers used a new methodology in the tourism literature, the stress test methodology,
commonly used by banking authorities. The sample size is financial data of all Spanish
hospitality firms (NACE code 5510) from 2006 to 2019, with 69,182 firm-year observations. The
number of observations varies due to restrictions in data availability, such as for cash holdings,
available for 50,691 observations.
The main magnitudes of the balance sheet and of the income statement of the firms were
analyzed. Two different approaches, a Logit model of bankruptcy with parameters estimated
with the data in the Great Recession (2008–2013) and the stress test methodology (usually used
by banking regulators), both using the most recent accounting data available and the predicted
drop of revenues for 2020. The major findings of the research is that it predicts a large proportion
of firms in financial distress, up to 32% of firms when revenues drop 80% and the logit model
coincides with the solvency or the liquidity stress tests to predict failure. The stress tests analysis
consists of simulating different scenarios of negative shocks that affect the operating income of
firms, estimates the expected loss of the firm given the assumptions on the evolution of operating
costs, and assess whether this loss might imply problems in terms of liquidity and solvency that
might compromise the viability of the firm.
The results suggest that financial strength of firms will be crucial for hospitality firms to survive
the Covid-19 disaster. It was Identified that the nature of the financial distress situation that firms
may suffer (solvency and liquidity) and the specific relevant financial characteristics that might
contribute to survival. Furthermore, those firms with lower operational leverage (lower relevance
of fixed costs) will be in a better position to survive the crisis. It was also identified that the
relevant sources of operational leverage to achieve a safer position.

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

financial-slack-driven risk preparedness Monika Wieczorek-Kosmala

This study has assessed 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.
To better address the risk-preparedness context, this study expands the existing approaches, by
developing a model to evaluate financial-slack-driven risk preparedness, which offers another

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 relevant contribution. This exploratory work contributes also to the existing body of literature on
risk and crisis management in the hospitality industry.
First, the researchers clustered the hospitality businesses according to the degree of risk
preparedness (with reference to the size and persistence of their financial slack holdings).
Secondly, it 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.
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/). From the EMIS database, they were able to obtain the data on the
performance of the hospitality businesses operating in four countries: the Czech Republic,
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. A sample of 1154 hospitality businesses for further analysis of financial-slack driven risk
preparedness was taken.

2.3. Conceptual Framework

 Liquidity
 Total Asset
Financial Performance
Financial Turnover after the pandemic
Performance before
 Solvency
the pandemic
COVID-19  Revenue per COVID -19 pandemic
available room
Pandemic

3. Research Design and Methodology

3.1. Research Design

The research design is descriptive as it tries to assess the impact of COVID-19 on the financial
performance of the hotel industry. Descriptive approach will help outline the effect of COVID19
on the key performance indicators of the hotel industry. The research approach is quantitative as

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quantitative research “describes, infers, and resolves problems using numbers. Emphasis is
placed on the collection of numerical data, the summary of those data and the drawing of
inferences from the data.

3.2. Population, Sample size and Sampling Technique

3.2.1. Population and Sampling Frame

The populations of the study are hotels operating in Ethiopia that has trade license from the
ministry of trade. The sampling frame includes those hotels that are operating in Addis Ababa
and that are awarded five star hotels. According to the Ministry of Culture and Tourism there are
seven hotels that are awarded five star hotels from the recent reports. The population only
included the hotels that have five stars because according to recent report by the Hotel
Association they are the main tourist choices and since the research tries to assess the impact of
COVID-19 on the financial performance of the hotels.

3.2.2. Sample Size

The sample size includes all of the five star hotels that are currently operating in Addis Ababa.
Hence the hotels in sample are all the seven hotels that are rewarded five stars by the ministry.
The study will use firm level as well as aggregate data of the hotels in the hotel industry and the
economy. Since all the hotels that are awarded five stars are in the sample size the sampling
technique is survey method. The sample will include Sheraton Addis, Hilton Hotel, Ellele Hotel,
Capital Hotel, Marriott Executive Hotel, Radison Blue hotel, and Getfam Hotel.

3.3. Data Collection

Per capita income-The Covid-19 pandemic affects all major world economies, predicting a major
world economic crisis in 2020. Ethiopia will not be an exception as several diverse trends would
seem to dominate the near-term economic outlook. The major data sources are the various annual
and quarterly publications and financial accounts of the hotels. Basically, the coverage is for four
years that will cover two years pre-COVID from 2018-2019 and during the pandemic from 2020-
2021 inclusive of the ten hotels in the sample.

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3.4. Data Analysis

The analysis of the financial performance of hotels will be carried out using Paired sample t-test
and financial ratio analysis (FRA). The purpose of the research is to analyze the significant
financial performance before and after the Corona Virus Pandemic. The type of analysis to be
used is paired sample T-Test which enables the researcher to compare the financial performance
before and after the occurrence of the pandemic. Paired sample t-test is a statistical technique to
use in before-after studies and used to compare two population means. It has been used in many
instances such as workers’ productivity, medical, business, and much more.

The following variables will be selected: 1) Solvency, 2) liquidity level 3) Revenue per available
room, 4) total asset turnover ratio with recognized impairment so far.

4. Significance of the Study

The corona virus has shocked the global economy as well as the daily lives of everyone to the
core. Among the many sectors affected by the pandemic tourism as a whole and the hotel
industry specifically have been hit the hardest. Even though corona virus has affected the global
economy, different viruses and crisis were affecting our world through-out history and these type
of crises will continue to occur in the future. By examining the extent of the impact the pandemic
had and still continues to have it can be understood what one could have done to prepare for such
crisis. The hotel industry should prepare for such kind of crisis or shocks as this pandemic will
not be the last to shock the global economy. Since CORONA virus is a new phenomenon there
are little research done in this topic, hence this paper could help in adding up to the literature
available. In a world of globalization and fast technological innovations it is apparent that there
will be another crisis, hence as a country Ethiopia’s different sectors should take a lesson from
the failures these crisis brought in order to have policies for future preparations. And for future
research this research will help as a base to understand the main elements affected by the
pandemic and further analyze in detail.

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5. Expected Result

As the title indicates, this research will assess the impact of coronavirus on the performance of
the hotel industry. There have been different crisis natural and man-made that has affected the
world but the corona virus has been unique in affecting every sector and every country. To assess
the financial performance of the hotel industry under the stress the pandemic brought about,
secondary data specifically audited financial reports of the hotels in the sample will be assessed.
Hence it will increase the probability of success of the research.

6. Timeline of the Research

The research will follow the following timeline.

Planned Activities Months

May June and July August
Writing Research Proposal 
Data Collection 
Data Analysis 
First Draft of the Research 
Finalize the Research 

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Reference

Rafel Crespí-Cladera, Alfredo Martín-Oliver, Bartolom´e Pascual-Fuster, 2020: Financial distress

in the hospitality industry during the Covid-19 disaster

Monika Wieczorek-Kosmala, 2021: COVID-19 impact on the hospitality industry: Exploratory study of

financial-slack-driven risk preparedness

Mahder kirose Berihe1* Genemo Fitala Feyissa 2 Melese Chala Tadesse,2020: Impact of Covid 19 on Tourism and
Hotels of Ethiopia

Polemis, Michael, 2020, The impact of COVID-19 on hotel performance: Evidence from a
Difference-in-Differences approach

Yeon, J., Song, H.J., Lee, S. (2020). Impact of short-term rental regulation on hotel industry: a
difference-in-differences approach, Annals of Tourism Research, 83,

Qiu, R., Park, J., Li, S and Song, H. (2020). Social costs of tourism during the COVID-19
pandemic, Annals of Tourism Research

UNWTO: Calls for Stronger Coordination to Restart Tourism

https: //www.unwto.org/news/tourist-arrivals-down-87-in-january-2021-as-unwto-

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