Michael J. Turner

Hotel management contracts and deficiencies in owner-operator capital expenditure goal congruency

A review of the findings of prior empirical research concerning hotel management contracts between owners and operators is undertaken. It is noted that management contracts have become increasingly commonplace in the international hotel sector and that gross revenue and gross operating profit are the most extensively used determinants of operator incentive fee remuneration. These findings present a platform for examining how revenue and gross operating profit are deficient in promoting owner—operator goal congruency. In light of this, return on investment (ROI) and residual income (RI) are examined as potential alternative determinants of operator reimbursement. Although it is appears that both ROI and RI as determinants of hotel operator fees would represent an advance in promoting owner—operator goal congruency, a rationale outlining how RI is preferable to ROI is outlined.

Factors affecting biasing of capital budgeting cash flow forecasts: evidence from the hotel industry

This study contributes to a neglected aspect of the capital budgeting process, namely, the proposal development stage, which is primarily concerned with project cash flow estimation. Given that the deployment of sophisticated selection techniques is severely undermined when directed to input data suffering from bias, it is surprising that minimal empirical research has sought to explore for antecedent factors associated with biasing of capital budgeting cash flow forecasts. This paper reports the findings of a survey concerned with determining factors associated with biasing of capital budget cash flow forecasts in hotels that are mediated by a management contract. Statistically significant support is provided for the view that higher levels of biasing of capital budget cash flow forecasts occur in the presence of: high emphasis attached to the payback investment appraisal method; deficient reserve funds for furniture, fittings, and equipment (FF&E); low operator accessibility to reserve funds for FF&E; shorter periods of time to management contract expiry; and high emphasis attached to non-financial factors in capital budgeting appraisal.

Accounting for the Furniture, Fittings & Equipment Reserve in Hotels

The somewhat idiosyncratic accounting procedure of maintaining reserves to fund furniture, fittings and equipment (FFE (ii) determining FFE (iii) determining the amount assigned to FFE (iv) determining the sufficiency of FFE and (v) appraising the degree of ease with which hotel operators can draw on FF&E reserve funds. These objectives have been pursued through the analysis of qualitative field data as well as survey data collected in Australia and New Zealand. The study’s more significant findings include the determination that, consistent with the wishes of operators, maintaining cash funded FF&E reserves is the most popular approach (particularly in small hotels). It has also been found that FF&E reserves are 40 per cent underfunded. This deficiency beckons a question over whether hotel FF&E reserve accounting serves any meaningful role.

Discrete choice experiments: a research agenda for experimental accounting

Purpose This paper aims to introduce and illustrate how discrete choice experiments (DCEs) can be used by accounting researchers and present an agenda of accounting-related research topics that might usefully benefit from the adoption of DCEs. Design/methodology/approach Each major phase involved in conducting a DCE is illustrated using a capital budgeting case study. The research agenda is based on a review of experimental research in financial accounting, management accounting and auditing. Findings DCEs can overcome some of the problems associated with asking decision-makers to rank or rate alternatives. Instead, they ask decision-makers to choose an alternative from a set. DCEs arguably better reflect the realities of real-world decision-making because decision-makers need to make trade-offs between all of the alternatives relevant to a decision. An important advantage that DCEs offer is their ability to calculate willingness-to-pay estimates, which can enable the valuation of non-market goods. Several streams of experimental accounting research would appear well-suited to investigation with DCEs. Research limitations/implications While every effort has been made to ensure that this illustration is as generic to as the many potential studies as possible, it may be that researchers seeking to utilise a DCE need to refer to additional literary sources. This study, however, should serve as a useful starting point. Practical implications Accounting researchers are expected to benefit from reading this article by being: made aware of the DCE method and its advantages; shown how to conduct a DCE; and provided with an agenda of accounting-related research topics that might usefully benefit from application of the DCE methodology. Originality/value It is the authors’ understanding that this is the first article directed to accounting academics regarding the conduct of DCEs for accounting research. It is hoped that this study can provide a useful platform for accounting academics to launch further research adopting DCEs.

Do government administered financial rewards undermine firms’ internal whistle-blowing systems?: A pitch

Purpose - This paper aims to provide a discussion of the application of the research pitch template developed by Faff ( Design/methodology/approach - This paper applies the template of Faff ( Findings - As a first-time user of Faff’s ( Originality/value - This is a new research idea that is not a pitch retrofitted from published papers or theses. The pitch template was used for the purposes of developing and refining the research idea.

Incentives and monitoring: impact on the financial and non-financial orientation of capital budgeting

While investment decisions may be financial decisions, there is a growing recognition that they are also often non-financially based decisions. The purpose of this study is to report findings focused on the project selection stage of capital budgeting, which has the objectives of exploring for: the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting; and the role, if any, that two agency theory variables have on the relative degree of emphasis: a personal incentive for project go-ahead and monitoring of project outcomes through a post-audit.,Discrete choice experiments (DCEs) are used and framed in a between-subjects 2 (personal incentive) × 2 (monitoring) design. DCEs are well-suited to research questions which examine some tension between competing alternatives. For example, trade-offs involving the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting.,In the absence of a personal incentive and monitoring, decision makers attach a significant degree of emphasis to cash inflows and cash outflows, both financial factors, and one strategic non-financial factor being improvement in the position of the firm vis-a-vis competitors in capital budgeting. However, when decision makers receive a personal incentive from project go-ahead, they attach a lower degree of emphasis to cash outflows. Alternatively, when there is monitoring through a post-audit and a personal incentive, decision makers attach a higher degree of emphasis to cash outflows.,Decision makers attach a significant degree of emphasis to only a relatively narrow band of attributes in making a capital budgeting decision, which is true in both the absence of and in the presence of the agency conditions. There is also little support for the view that there is any higher degree of emphasis attached to a financial orientation vis-a-vis a non-financial orientation. A particularly important finding relates to the overarching goal of monitoring through a post-audit. One view is that it should foster more accurate forecasting by making forecasters aware that their efforts will be reviewed. However, the findings of this study appear to be more supportive of a view that post-audits might lead agents to become more conservative or even shy away from projects.,The study makes contributions to the growing field of research which has the objective of exploring for the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting. In particular, it extends the prior research through its investigation of the role that two agency theory variables play in the relative degree of emphasis decision makers attach to a financial and non-financial orientation: a personal incentive for project go-ahead and monitoring of project outcomes through a post-audit.

The role of hotel owners across different management and agency structures

ABSTRACT This study examines the degree to which hotel owners influence the operation of their hotels in both single- and multiple-agency scenarios. Key findings from a survey of 499 general managers are that: (1) owners influence financial property-level decisions to a greater extent than operational property-level decisions; (2) owners of independently operated hotels are more involved in such decisions than are owners of hotels operated by a management company; and (3) asset managers assist owners in achieving greater involvement. The findings provide empirical evidence about how principals can mitigate the agency problem in multiple-principal scenarios through client and behavior-based methods.

The Impact of Renovation Capital Expenditure on Hotel Property Performance

This study investigates the impact of renovation capital expenditure on multiple measures of hotel property performance. We conduct analyses in two time periods: for a 3-year period immediately following renovation (short-term impact), and 3 to 6 years following renovation (long-term impact). The study is based on proprietary project, operational and financial data obtained for 305 renovation capital expenditure projects of individual properties within a single budget hospitality chain. We find renovation capital expenditures offer significant short-term beneficial impact in terms of increased revenue, profitability gains, higher customer satisfaction, and decreased repair and maintenance expense. Altogether, these outcomes should be advantageous to hotel property performance. In the long-term, a significant decline is apparent in revenue and profitability. Surprisingly, customer satisfaction does not decline, and repair and maintenance expense does not increase, which are both favorable.