Comparative profitability analysis of foreign direct and domestic investment in hotels of Bosnia and Herzegovina

Abstract

Over the past few decades, foreign direct investment (FDI) has become one of the most common forms of international investment. Researchers agree that this type of capital promotes financial growth while others believe that growth is hindered, therefore the main goal is to analyze to which degree FDI affects financial performance of hotels in Bosnia and Herzegovina. This comparative analysis is based on profit metrics (profit margin, return on assets and return on equity) of all domestic and foreign hotels in Bosnia and Herzegovina, covering a five-year period. For the purpose of this research, 412 hotels of Bosnia and Herzegovina were examined, with data collected from their audited annual financial reports. Using total population sampling, research is primarily focused on whether there is significant statistical difference in financial performance of domestic and foreign hotels. After having analyzed the annual financial results of all domestic and foreign hotels in the country, major results suggest that the overall model is only partially confirmed. According to regression outputs and the independent t-test, two out of three hypotheses are supported. Significant statistical difference exists both in profit margins and in ROE of domestic and foreign hotels, and the third hypothesis, stating that significant statistical difference exists in their ROA, is rejected. Furthermore, this analysis concludes what Bosnia and Herzegovina should improve on, including its particular laws and policies, in order to attract more FDI inflows.

Keywords

• comparative analysis
• foreign direct investment
• international investment
• profit metrics
• total population sample