Role of Risk Identification on the Financial Performance of 3-5-Star Hotels in Nairobi City County, Kenya
DOI:
https://doi.org/10.53819/81018102t3157Abstract
Risk identification is crucial to success in hospitality, helping achieve stakeholders' income and growth objectives. Risks can negatively affect financial outcomes. This study examines how risk identification influences the financial performance of 3- to 5-star hotels. It provides insights for hotel owners, managers, industry stakeholders, officials, policymakers, and researchers, emphasizing the importance of risk mitigation strategies in ensuring financial stability. Data was collected from 396 participants across 44 star-rated hotels, divided into three groups, using structured questionnaires, interviews, observation, and published sources. A stratified random sample of 196 respondents, including hotel managers, staff, and suppliers, was selected. The study employed a descriptive, mixed-methods approach to analyze both qualitative and quantitative data to answer the research questions. Data analysis was conducted with SPSS, utilizing descriptive and inferential statistics. Results indicated that risk management practices significantly impact the financial performance of star-rated hotels. Risk identification (β = 0.4080, p < 0.05) enables 3- to 5-star hotels in Nairobi City County, Kenya, to anticipate financial uncertainties, reduce losses, minimize disruptions, and enhance operational efficiency. The study emphasizes that a strong risk identification strategy contributes to long-term financial stability. The conclusion states that a structured risk identification approach improves hotels' financial performance, leading to higher profitability, lower risk, and sustainable growth. Risk governance officers should enhance risk identification and incorporate it into strategic planning for stability. Future research might explore differences in risk mitigation between private and franchise hotels and their financial outcomes.
Keywords: Risk Identification, Financial Performance, 3-5-Star Hotels, Nairobi City County, Kenya
References
Amar, M., Syariati, A., Ridwan, R., & Parmitasari, R. (2021). Indonesian hotels' dynamic capability under the risks of COVID-19. Risks, 9(11), 194. https://doi.org/10.3390/risks9110194
Andrade, C. (2021). A student's guide to the classification and operationalization of variables in the conceptualization and design of a clinical study: Part 1. Indian Journal of Psychological Medicine, 43(2), 177–179. https://doi.org/10.1177/0253717621994334
Babajee, R. B., Seetanah, B., Nunkoo, R., & Gopy-Ramdhany, N. (2022). Corporate social responsibility and hotel financial performance. Journal of Hospitality Marketing & Management. https://doi.org/10.1080/19368623.2021.1937433
Bednarska, M. (2004). Risk control methods in a hotel operation. Economics and Business Review, 4(1), 43–51.
Bharwani, S., & Mathews, D. (2012). Risk identification and analysis in the hospitality industry: Practitioners' perspectives from India. Worldwide Hospitality and Tourism Themes, 4(5), 410–427. https://doi.org/10.1108/17554211211277851
Carr, S. M. (2024). Safety, security and emergency management strategy training in hospitality industry: Report of preparedness for active threats, traumatic and epidemic events.
Chung, K., Nguyen, L. T. M., & Nguyen, D. T. T. (2024). Improving hotels' operational efficiency through ESG investment: A risk management perspective. Service Science.
Donbak, E. R., Kirpik, G., & Valeri, M. (2022). An overview of crisis management in hospitality enterprises: The case of operating at an international level hotel in Adiyaman. Tourism Risk.
Ephrim, C. (2025). Managing risks in new product development projects in the food industry and beverage manufacturing industry in Ghana [Doctoral dissertation, University of Cape Coast].
Ezema, C. C., & Okeahialam, C. O. (2025). Investment risks and returns in three-star hotels in Enugu City, South East Nigeria. Journal of Biodiversity and Environmental Research. https://doi.org/10.70382/sjber.v7i4.017
Florido-Benítez, L. (2024). Digital traveler and data ethics in tourism and hospitality.
Gamage, T. C., Tajeddini, K., & Kallmuenzer, A. (2023). Entrepreneurial bricolage and competitive advantage in tourism SMEs.
Ghaderi, Z., King, B., & Hall, C. M. (2022). Crisis preparedness of hospitality managers: Evidence from Malaysia. Journal of Hospitality and Tourism Insights. https://doi.org/10.1108/jhti-10-2020-0199
Gray, W., & Liguori, S. (2003). Hotel and motel management and operations. Prentice Hall/PTR.
Gupta, V. (2024). Evaluating the impact of geopolitical risk on the financial distress of Indian hospitality firms. Journal of Risk and Financial Management, 17(12), 535. https://doi.org/10.3390/jrfm17120535
Hajimahmud, Khang, Ali, Aliyeva, & Asgarova. (2024). Managing financial risks in the gig economy. In Synergy of AI and Fintech in the digital gig economy (pp. 125–134). CRC Press.
ISO. (2009). ISO 31000:2009 Risk management—Principles and guidelines. International Organization for Standardization.
Isibor, N. J., Ibeh, A. I., Ewim, C. P. M., Sam-Bulya, N. J., & Martha, E. (2022). A financial control and performance management framework for SMEs: Strengthening budgeting, risk mitigation, and profitability. International Journal of Multidisciplinary Research and Growth Evaluation. https://doi.org/10.54660/.IJMRGE.2022.3.1.761-768
Jaindi Kisero. (2025). Hotel closures in Kenya.
Judijanto, L., Hairuddin, S. H., Subhan, S., & Sipayung, B. (2024). Analysis of the effect of risk management and compliance practices on financial performance and corporate reputation in the financial industry in Indonesia. The ES Accounting and Finance.
Kenya National Bureau of Statistics [KNBS]. (2024). Economic survey 2024.
Kitoto, J. O. (2024). Diversification strategies and organizational performance among star-rated hotels in the Kenyan coast.
Kolomiiets, D. V. (2024). Enterprises financial security in conditions of global instability: Analysis of external factors and adaptation strategies.
Kothari, C. R. (2014). Research methodology: Methods and techniques. New Age International Ltd.
Krastanova, V. S. (2025). Opportunities for effective hotel business management in crisis conditions.
Kumar, S. (2024). Uncertainties in the hospitality sector. In VUCA and other analytics in business resilience, Part B (pp. 183–197). Emerald Publishing Limited.
Lai, I., & Wong, J. (2020). Comparing crisis management practices in the hotel industry between the initial and pandemic stages of COVID-19. International Journal of Contemporary Hospitality Management, 32(10), 3135–3156. https://doi.org/10.1108/ijchm-04-2020-0325
Mahembe, W., & Mutezo, A. T. (2025). Operational risk management during disasters: A case of South African tourism small businesses. Jàmbá: Journal of Disaster Risk Studies. https://doi.org/10.4102/jamba.v17i1.1761
Maina, S. T. (2021). Effect of financial risk on the financial performance of five-star hotels in Kenya.
Matey. (2022). Risk management challenges in star-rated hotels.
Megeid, N. S. A. (2024). The impact of climate risk disclosure on financial performance, financial reporting and risk management: Evidence from Egypt. Future Business Journal. https://doi.org/10.1186/s43093-024-00309-5
Milton, T. (2024). Exploring the synergy of artificial intelligence and financial management in the hotel industry: A critical review of innovations, challenges and strategic implications for enhancing operational efficiency and competitive advantage. International Journal for Multidimensional Research Perspectives, 2(2), 79–95.
Mugambi, J., & Muturi, W. (2023). Factors affecting capital structure and financial performance of hotels in Nairobi.
Mugenda, O., & Mugenda, A. (2003). Research methods. Acts Press.
Muiruri, W. G., & Kabata, D. (2025). Effect of resilience strategies on business continuity in the hospitality industry in Nairobi County, Kenya.
Murimi, M., Wadongo, B., & Olielo, T. (2021). Determinants of revenue management practices and their impacts on the financial performance of hotels in Kenya: A proposed theoretical framework. Future Business Journal, 7(1). https://doi.org/10.1186/s43093-020-00050-9
Ndung'u, C. (2022). The effect of enterprise risk management on the financial performance of firms in the hospitality industry in Kenya [Doctoral dissertation, University of Nairobi].
Ng'olua. (2024). Risk management and hotel performance in three-star rated hotels.
Nzisa, J., Gitahi, N., & Kiprop, S. (2021). Hotel industry competitiveness in the COVID-19 pandemic environment in Kenya: How technologically ready are the hotels.
Ogunmokun, A. S., Balogun, E. D., & Ogunsola, K. O. (2022). A strategic fraud risk mitigation framework for corporate finance cost optimization and loss prevention. International Journal of Multidisciplinary Research and Growth Evaluation. https://doi.org/10.54660/IJSSER.2022.1.1.270-276
Okoye, K., & Hosseini, S. (2024). Understanding dependent and independent variables in research experiments and hypothesis testing. In R programming: Statistical data analysis in research. Springer Nature Singapore.
Opreana, A., Vinerean, S., Mihaiu, D., Tileagă, C., & Serban, R. (2024). Financial performance, financial position, liquidity, earnings, and debt in tourism companies from Asia and Europe.
Pai, C. K., Chen, H., & Wang, Y. (2024). The moderating effect of safety image on guests' perceived risk and revisit intentions in luxury hotels. International Journal of Tourism Research. https://doi.org/10.1002/jtr.2614
Passey, D. (2020). Theories, theoretical and conceptual frameworks, models, and constructs: Limiting research outcomes through misconceptions and misunderstandings. Studies in Technology Enhanced Learning, 1(1).
Phung, N. T., & Nguyen, L. T. M. (2025). Corporate culture and financial stability: A study of US hotel firms. International Journal of Hospitality Management, 126, 104041. https://doi.org/10.1016/j.ijhm.2024.104041
Pipyros, K., & Liasidou, S. (2025). A new cybersecurity risk assessment framework for the hospitality industry: Techniques and methods for enhanced data protection and threat mitigation. Worldwide Hospitality and Tourism Themes.
Ritchie, B. W., & Jiang, Y. (2021). Risk, crisis, and disaster management in hospitality and tourism: A comparative review. International Journal of Contemporary Hospitality Management. https://doi.org/10.1108/ijchm-12-2020-1480
Santa, R., et al. (2025). Risk-return profile in hospitality investments.
Sharma, P., Mehta, S. K., Dsouza, S., & AlKhawaja, A. (2025). Drivers of working capital efficiency in the Indian hospitality sector. Investment Management & Financial Innovations, 22(2), 47.
Sheedy, E. (2021). Risk management in economic activities.
Tajeddini, K., & Kallmuenzer, A. (2023). Entrepreneurial bricolage and competitive advantage.
Tajeddini, K., Gamage, T. C., Tajeddini, O., & Kallmuenzer, A. (2023). How entrepreneurial bricolage drives sustained competitive advantage in tourism and hospitality SMEs: The mediating role of differentiation and risk management. International Journal of Hospitality Management, 111, 103480.
Usta, S. K. (2024). Cybersecurity risk analysis in the hospitality industry: A stakeholder perspective on sustainable service systems.
Wachira. (2022). Internal control mechanisms and financial performance of classified hotels in Nairobi.
Wambua, R. W. (2024). Turnaround strategies and performance of selected three star hotels in Machakos County, Kenya [Doctoral dissertation, Kenyatta University].
Wei, H. C. (2024). A strategic evaluation model for hotel investments: A value management approach for key stakeholders.
Yallop, A. C., Gică, O. A., Moisescu, O. I., Coroș, M. M., & Seraphin, H. (2021). The digital traveler: Implications for data ethics and data governance in tourism and hospitality. Journal of Consumer Marketing, 40(2), 155–170. https://doi.org/10.1108/JCM-12-2020-4278
Young, K. (2021). Marriott data breach and brand impact.
Zhang, Y., & Guan, X. (2021). Budget allocation decisions for project risk response.
