Persistent Performance Differences in Lodging Properties

Abstract

Studies have documented the existence of persistent performance differences across business units and firms in many industries and countries. Unfortunately, little is known about the causes of these performance differentials. Using property-level data from the lodging industry, this study documents the existence of large and persistent performance differentials across lodging units. These differences exist after controlling for the resources utilized for the production of the service as well as market conditions and hotel property characteristics and are most persistent for the highest and the lowest performers. Similar to studies that analyzed performance differences in other industries, our analysis leaves a large portion of the variation in performance differences unexplained. However, we do find that a small portion of these performance differences is positively related to the hotel property’s choice regarding chain size and hotel portfolio company scope, suggesting the possibility of benefits from scale economies and/or scope. Understanding how performance differences arise and persist requires a close look into less deterministic, quantifiable, and tangible factors such as managerial practices, decision-making processes, innovation, knowledge creation, the transfer of knowledge, the flow of information, compensation, and personnel policies, among others. In other words, there is much unexplained and yet to be discovered here, resulting in a ripe area for future research. Future research that links attributes of the industry’s demand, management controls, or technology to factors driving productivity may help explain, and perhaps enhance, the industry’s productivity growth.