Franchising Effects on the Lodging Industry: Optimal Franchising Proportion in Terms of Profitability and Intangible Value

Joonho Moon and Amit Sharma
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Joonho Moon: School of Hospitality Management (HRIM), 101 Mateer Building, The Pennsylvania State University, University Park, PA 16802, USA
Amit Sharma: School of Hospitality Management (HRIM), 216 Mateer Building, The Pennsylvania State University, University Park, PA 16802, USA, and Kyung Hee University, Seoul South Korea

Tourism Economics, 2014, vol. 20, issue 5, 1027-1045

Abstract: Franchising in the hospitality industry, particularly in the lodging business, has been an extensively studied topic. Yet the answers to critical questions have eluded researchers and practitioners: is franchising in the lodging industry profitable and a value-creating strategy? Moreover, what is the optimal proportion of franchising to attain certain financial outcomes? This study evaluates franchising in the lodging industry, and poses two key financial questions. Are franchised lodging firms more profitable and value-generating than non-franchised operations? And what is the optimal proportion of franchised and non-franchised units for a lodging firm to maximize its financial performance and value creation? The results of the two-way, random-effect regression model suggest that franchised lodging firms are more profitable than non-franchised firms. The study also finds that franchised firms create more intangible value than non-franchised firms. In addition, the authors identify optimal proportions of franchised and non-franchised properties that allow lodging firms to maximize profitability and intangible value. The results provide a critical perspective on the discussion of whether or not lodging firms should franchise and, if so, to what extent.

Keywords: lodging; franchising decision; ROA; ROE; intangible value (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:20:y:2014:i:5:p:1027-1045

DOI: 10.5367/te.2013.0336

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