The Impact of Market Volatility on Hotel Efficiency in Malaysia : Does Hotel Size Matter ?

It is often argued that small firms are more flexible than large firms. As a result, small firms perform better in volatile markets compared to large firms. The present paper explores this idea for a representative sample of private hotels in Malaysia. Specifically, the paper estimates the impact of volatility in occupancy rates on the pure technical efficiency of small versus large hotels. A slack-based non-radial efficiency measure obtained from the data envelopment analysis methodology is used. The empirical results confirm that smaller hotels are better at dealing with volatility than large hotels are. That is, there is a positive and significant impact of higher volatility on the efficiency of relatively small hotels, a negative and significant impact on the efficiency of larger hotels, and no significant impact on the efficiency of the average hotel. Higher women’s ownership also helps hotels to deal with volatility. The paper discusses the policy implications of the findings.