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

Abstract

This article studies how the choice of the mechanism of governance affects online ratings of hotels, empirically exploring the conditions under which various governance mechanisms improve (or damage) them. We emphasize that no governance mode is universally superior. However, when the mechanism of governance fits hotel characteristics, online ratings improve. We argue that such characteristics (i.e., hotel category, size, and age) determine the severity of agency problems (e.g., managerial shirking and free-riding) and the performance of governance choice. We test several organizational fit hypotheses on a data set of 2,328 hotels operating in Spain. Our results support the fit argument, because they show the superiority of franchise and management contracts (i.e., hybrids) for enhancing online ratings, as opposed to vertical integration, when category rises and size increases. Furthermore, we find evidence that maintenance does not appear to be a major problem in leasing. JEL CLASSIFICATION: D23; L25; L83