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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Joonho Moon & Amit Sharma, 2014. "Franchising Effects on the Lodging Industry: Optimal Franchising Proportion in Terms of Profitability and Intangible Value," Tourism Economics, , vol. 20(5), pages 1027-1045, October.
    • Handle: RePEc:sae:toueco:v:20:y:2014:i:5:p:1027-1045
    DOI: 10.5367/te.2013.0336
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    References listed on IDEAS

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    Cited by:

    1. Chen Zheng & Henry Tsai, 2019. "The moderating effect of board size on the relationship between diversification and tourism firm performance," Tourism Economics, , vol. 25(7), pages 1084-1104, November.
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    3. Kwanglim Seo & Jungtae Soh & Amit Sharma, 2018. "Do financial constraints affect the sensitivity of investment to cash flow? New evidence from franchised restaurant firms," Tourism Economics, , vol. 24(6), pages 645-661, September.
    4. Manel Antelo & David Peón, 2021. "The Size of Strategic Alliances and the Role Played by Managers," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 287-313, June.

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