EMPIRICAL ANALYSIS OF SLOVENIAN HOTEL INDUSTRY PERFORMANCE WITH THE RELATIVE RESIDUAL INCOME APPROACH
EMPIRICAL ANALYSIS OF SLOVENIAN HOTEL INDUSTRY PERFORMANCE WITH THE RELATIVE RESIDUAL INCOME APPROACH

Author(s): Igor Stubelj, Mateja Jerman
Subject(s): Social Sciences, Business Economy / Management, Tourism
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: relative residual income; hotel industry; tourism; required return on equity capital; performance measure.
Summary/Abstract: This paper’s focus is on the relative residual income approach as a firm’s performance measure. The aim is to analyse the financial performance of the Slovenian hotel industry for a period from the year 2009 to 2018, with a relative residual income measure that takes into account the required return on equity capital. Taking into account the required return on equity is essential in firm’s performance valuation as is the opportunity cost for investors. To add value, a firm’s return on equity must exceed the required return on equity. Our results show that relative residual income of Slovenian hotel industry is negative for the entire analysed period. The same resulted for groups of large, medium-sized, and small firms. The situation is improving but is still not at the desired level that is adding value of equity capital for owners. Our further analysis shows that the Slovenian hotel industry is riskier than all Slovenian firms (i.e. average risky firm) in the observed period. However, the return on equity is much lower than of all Slovenian firms in the observed period. This gives additional support to our findings.

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