Thesis

An investigation of the use of hotel management contracts and the application of agency theory

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Awarding institution
  • University of Strathclyde
Date of award
  • 2009
Thesis identifier
  • T12424
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Abstract
  • Agency theory identifies the problems that may arise when ownership is separated from control (Jensen and Meckling, 1976) and concerns the ability of the principals to ensure their agents are fulfilling their objectives. Hotel management contracts (HMCs) are used worldwide as a mechanism for separating the ownership of hotel properties and their management. The research reported here examines the application of agency theory to these management contracts and the issues associated with the use of HMCs in Thailand, as perceived by Thai property owners and the international hotel chains. In this thesis there are two distinct but related foci. The first focus is concerned with the application of agency theory to HMCs, particularly in relation to issues arising from a potential conflict of interest arises. Here an effort is made to better understand the nature of the contractual relationship between the hotel owner (as principal) and the hotel management company (as agent) than is currently found in the extant literature. Moreover, while previous studies concerning HMCs were found to be very descriptive, this research attempts to develop a more theoretical perspective. This provides the first/primary research problem tackled by this thesis: ‘the extent to which agency theory is a useful lens to examine the nature of the relationship between the hotel owner and the hotel management company in hotel management contracts'. The second focus concerns an attempt to gain a better picture and understanding of the nature of the use of HMCs in Thailand. In Thailand, most of the international hotel management companies come from developed countries (e.g. USA, France) and these companies are continuing to expand around the world in both developed and developing countries through the use of HMCs. However, certain key issues and problems can arise along with the use of HMCs in Thailand. This addresses the second general research problem of establishing ‘the extent to which the nature and associated issues of hotel management contracts in Thailand are similar to those identified in previous research'. Given that the emphasis of this research is upon surfacing the perceptions of Thai hotel owners and the international hotel management companies (who have entered into a management contract arrangement in Thailand), it was decided that a qualitative approach was appropriate as this would enable the specific views of the individual participants to be captured. Another factor leading to this approach being adopted was that little or no previous research exists on HMCs in Thailand and in such circumstances a qualitative approach is considered appropriate (Creswell, 2003). The specific technique chosen for data collection was semi-structured, face- to-face, elite interviewing of selected participants who accounted for approximately twenty-five per cent of the total population of the management contracts awarded to international hotel companies in Thailand. The research findings suggest that agency theory can be an extremely useful and powerful theoretical lens for examining the relationship between the hotel owner and the hotel management company under a HMC. It is suggested that the agency relationship within a HMC is more usefully viewed as a ‘principal/professional’ type relationship (Mill, 1990; Sharma, 1997; Webber, 2000; Mason and Slack, 2005) rather than a traditional ‘principal/agent’ relationship (Jensen and Meckling, 1976; Sharma, 1997; Besanko et al., 2000; Ekanayake, 2004). However, it is also suggested that neither relationship fully captures the characteristics of the HMC, which is effectively a hybrid of the two types of agency relationships. Drawing upon these findings a new framework is presented one which is based upon the key features which characterise the nature of the agency relationship found in typical HMCs. It is also suggested that the traditional control approaches (i.e. outcome and behaviour control) might not be so effective in controlling the hotel management company (as agent) in HMCs when applied with the standard control instruments (e.g. contract document, specified monitoring mechanisms). In the context of HMCs, the control of outcome tends to be a priority of the hotel owner. Thus, there might be a need for the hotel owner (as principal) to utilise additional control approaches (e.g. self-control, bureaucratic control, community control, and client control) through control instruments in order to foster confidence and effectiveness in controlling the hotel management company (as professional agent). Finally, the findings also suggest that many of the issues associated with HMCs in Thailand are broadly in line with those reported in previous studies on HMCs elsewhere. However, there is evidence of some important variations and these would appear to be driven by the Thai cultural context which places greater emphasis upon relational and subjective factors than typically found in traditional hotel markets such as the USA.
Advisor / supervisor
  • Taylor, James Stephen
Resource Type
DOI
EThOS ID
  • uk.bl.ethos.510856
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