Organizational Form and Performance: Evidence from the Hotel Industry

51 Pages Posted: 2 Dec 2007 Last revised: 12 Jul 2010

See all articles by Renata Kosova

Renata Kosova

Imperial College London

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Rozenn Perrigot

Université de Rennes I - Graduate School of Management (IAE-IGR)

Date Written: July 10, 2010

Abstract

We use a unique proprietary monthly panel data set on the operations of a large hotel firm to study the effect of vertical integration decisions on the pricing and performance (occupancy rate and RevPar) of individual hotels. Aggregate data patterns – which managers pay most attention to – suggest sizeable performance differences between franchised and non-franchised hotels. However, empirical analyses controlling for observable and unobservable characteristics show that if significant at all, such differences are economically much smaller than what mean comparisons suggest. Furthermore, once we endogenize the choice of organizational form using information about the Company’s other hotels in the same local market, the differences are both statistically and economically insignificant. We conclude that the Company chooses which hotels to franchise and to own optimally such that, conditional on hotel and market characteristics, it achieves consistent results – in terms of revenues per room, occupancy rates, and prices – on average across the two sets of hotels. Relating our results, obtained in a policy unconstrained setting, to those from studies that showed significant performance differences when firms’ choices of organizational forms were restricted by policy, suggests that policy can significantly affect firm performance and outcomes.

Keywords: firm performance, organizational form, franchising, services

JEL Classification: D21, D23, L1, L2, L83

Suggested Citation

Kosova, Renata and Lafontaine, Francine and Perrigot, Rozenn, Organizational Form and Performance: Evidence from the Hotel Industry (July 10, 2010). Available at SSRN: https://ssrn.com/abstract=1034082 or http://dx.doi.org/10.2139/ssrn.1034082

Renata Kosova (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
734-647-4915 (Phone)
734-936-0279 (Fax)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Rozenn Perrigot

Université de Rennes I - Graduate School of Management (IAE-IGR) ( email )

11, rue Jean Macé
CS 70803
Rennes, Cedex 7 35708
France

HOME PAGE: http://www.rozenn-perrigot.com

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