The Role of Ownership in Managing Interfirm Opportunism: A Dyadic Study

Abstract

We extend research on transaction cost theory that shows that vertical integration enables firms to protect their investments in exchange relationships better than market mechanisms. However, extant research finds ownership to exacerbate, rather than limit, exchange partner opportunism. Hence, the purpose of this study is to investigate conditions under which ownership can be effective for constraining an exchange partner's opportunism. Using matched dyadic data for 296 hotel brands, we conduct multilevel hierarchical linear modeling and identify conditions under which common ownership limits hotel opportunism. Findings indicate that ownership can limit hotel opportunism when brand headquarters can easily monitor the hotel's activities.We gratefully acknowledge support for this study from the two hotel companies studied as well as the summer research program of the Cornell University School of Hotel Administration. The able assistance of Reed Fisher in helping us with the data collection is much appreciated. We also thank George Franke for his tutelage on SAS programming. AbstractWe extend research on transaction cost theory that shows that vertical integration enables firms to protect their investments in exchange relationships better than market mechanisms. However, extant research finds ownership to exacerbate, rather than limit, exchange partner opportunism.Hence, the purpose of this study is to investigate conditions under which ownership can be effective for constraining an exchange partner's opportunism. Using matched dyadic data for 296 hotel brands, we conduct multi-level hierarchical linear modeling and identify conditions under which common ownership limits hotel opportunism. Findings indicate that ownership can limit hotel opportunism when brand headquarters can easily monitor the hotel's activities.

Unraveling the role of governance mechanisms in online ratings: The case of Spanish chain-affiliated hotels

“…This suggests that ownership does not provide enough incentive intensity to deal with situations, such as those found in 5-Star hotels, in which preventing managerial shirking is key. This finding is consistent with the results of Brown et al (2014), who found that, in the presence of high monitoring difficulties, chain-owned hotels face more problems of management opportunism. However, it is contrary to the results of Andreu et al (2020) and Kruesi et al (2018) that support the opposite hypothesis.…”

“…3 In line with these arguments and focusing on the hotel industry, previous research has related the adoption of franchise agreements with the difficulty of monitoring the hotel manager (Alon et al, 2012; Fladmoe-Lindquist & Jacque, 1995; Norton, 1988). In the same vein, the study by Brown et al (2014) reveals that when monitoring a hotel is difficult, chain headquarters face higher opportunism from chain-owned facilities.…”

Social networking from a social capital perspective: a cross-cultural analysis

“…In this way, SCT is consistent with relational exchange theory, which is based on the premise that a socialization process takes place when firms develop relationships. These relationships over time lead to shared goals and reduce opportunism within and between firm relationships (Brown et al , 2014).…”

Information Technology Outsourcing: Influence of Supplier Firm Size and Reputation on Buyers’ A Priori Perceptions of Opportunism and Uncertainty

“…Both opportunism and uncertainty are shown to influence a range of outcomes such as service quality and costs in an outsourcing arrangement (Wathne & Heide, 2000). At the same time, TCA scholars (Brown, Krishen, & Dev, 2014;Rindfleisch & Heide, 1997) examined various antecedents of opportunism in inter-firm relationships but did not incorporate supplier firm characteristics as indicators of pre-contract opportunism.…”