What determines the financial stability of hotel firms in Croatia?

Investigation of firm financial stability has gained attention of researchers over the last few decades. The fact that the focus of such research was mainly on financial institutions, particularly banks and insurance companies, does not diminish the importance of investigating financial stability of hotel firms, especially in countries where tourism contributes significantly to GDP growth. Thus, the authors have conducted the research in order to estimate the factors that determine financial soundness of medium-sized and large hotel firms that operated in Croatia in the 2020 – 2024 period. The research employed dynamic panel analysis with the aim of estimating impact of various firm-oriented factors consisting of liquidity, leverage, overall business efficiency, earning per employee, firm size, and firm age. Besides that, given that the time frame of the analysis also includes years in which hotel operations were significantly affected by the COVID crisis, the authors took this fact into account by introducing the COVID dummy variable. The results of the analysis reveal that leverage and firm age are significant factors that negatively affect financial stability of hotel firms in a small, tourism-dependent economy. The originality of this paper stems from its orientation on the financial stability of hotel firms in a small, tourism-dependent economy providing empirical evidence on the firm-specific determinants of financial stability using a dynamic panel model positioning it as one of the first comprehensive analyses of financial stability in the Croatian hotel sector.