Type of Submission

Refereed Article


The purpose of this study was to identify problems and weaknesses existing in the Korean hospitality industry by examining some key financial ratios in comparison with those of its U.S. peer. Using the 2006 financial data of 194 Korean hospitality firms and 80 U.S. hospitality firms, 13 financial ratios representing liquidity, leverage, solvency, efficiency, and profitability were computed for each firm. Independent sample t-test was performed to determine if there were significant cross-country differences in the ratios. The results show that there was a huge performance gap between the hospitality industries of the two countries, and the U.S. hospitality firms outperformed their Korean counterparts in all five dimensions. The findings suggest that over reliance on debt financing, overcapacity, and lack of economies of scale are the likely causes of the underperformance of the Korean hospitality industry. To catch up with its U.S. peer, the Korean hospitality industry must change its pro-debt financing policy, adopt a conservative growth strategy to minimize overcapacity, and enlarge the operation scale via some structural reorganization within the industry.