GROWTH THROUGH USE OF FRANCHISING AND MANAGEMENT CONTRACTS: EVIDENCE FROM THE HOTEL INDUSTRY
HENG ZHI YING GENEVIEVE
HENG ZHI YING GENEVIEVE
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Abstract
Fuelled by a growing demand for travel and tourism, the hospitality sector is a fast growing one. This has led to hoteliers expanding both domestically and internationally using alternative market entry strategies. In contrast to direct ownership, franchising and management contracts with hotel owners offer hoteliers to grow with fewer capital commitments.
Firms favour the use of contractual agreements as it allows them to build a network of hotels quickly and increase territorial coverage with minimal capital and risk undertaken. On one hand, the transaction cost economy theory suggest that contractual agreements causes free-rider problems and opportunism. On the other hand, agency theory postulates that such hybrid organisational forms deter moral hazard and adverse selection at a lower monitoring cost than is incurred with company-owned hotels. This dissertation examines the relationship between the use of franchising and management contracts and performance of firms in the hospitality sector.
The study encompasses 42 hotel corporations listed in eight stock markets, namely United States, United Kingdom, France, Singapore, Malaysia, Hong Kong, Thailand and Japan. Using a multivariate linear regression, the findings of the study is as follows: Firstly, the use of contractual agreements such as franchising and management contract has a significant positive impact on corporate performance measured by Tobin's q and Return on Assets. Secondly, firm size, debt leverage, capital intensity and firm age have a significant impact on a firm's decision to adopt franchising or management contracts in their expansion strategy. The results are robust to the substitution of the performance measure, the use of an alternative measure of the proportion of contracted hotels as well as the addition of advertising intensity as a control variable.
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Real Estate, RE, Ooi Thian Leong Joseph, 2012/2013 RE
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2013-04-16
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Dissertation