The indirect distribution dilemma: assessing the financial impact of participation in Booking.com for hotels

Abstract

Purpose This study aims to assess if the benefits outweigh the costs of participation in online travel agencies (OTAs) such as Booking.com. Design/methodology/approach A two-step system generalised method of moments estimation of a regression model of firm-level return on assets (ROA) is used on a dummy variable indicating whether a lodging facility participates in Booking.com. The assessment contained various control variables, including size, age, leverage, liquidity and lagged ROA. The moderating effect of firm age and size was studied by including interaction variables between the Booking.com dummy and age and size, respectively. The model was estimated using participation and financial data of 775 Belgian firms over a 20-year period (1999–2018). Findings The findings indicate that participation in Booking.com is associated with higher profitability, with this effect more economically important and pronounced for smaller hotel properties. Research limitations/implications The study provides a broadly applicable empirical model to assess the impact of platform participation on the financial performance of tourism, hospitality or retail businesses. Practical implications The study provides empirical evidence that, from a transaction cost perspective, the benefits of participation in OTAs outweigh the costs, resulting in substantially higher profitability. The evidence can be used to justify the use of OTAs as distribution channels. Originality/value While prior studies have described and conceptually analysed the evolution and role of OTAs in the hotel sector, and speculated on the net effect of OTA participation, to the best of the authors’ knowledge, this is the first study to empirically assess whether OTA participation creates value for hotel owners and investors.

User-generated reviews and the financial performance of restaurants

“…The dependent variable is the return on assets (ROA), calculated as earnings before interest and taxes (EBIT) over the year t, divided by total assets at the beginning of year t. ROA is a measure of profitability (Penman, 2009) which has the advantage that, unlike return on equity, it is not mechanically affected by leverage. As a result, it is a commonly used measure in the empirical performance literature (De Schoenmaker et al, 2014;Nunes et al, 2009) and has previously been used in the tourism context (Abdullah et al, 2021).…”

“…ROA is a measure of profitability (Penman, 2009) which has the advantage that, unlike return on equity, it is not mechanically affected by leverage. As a result, it is a commonly used measure in the empirical performance literature (De Schoenmaker et al , 2014; Nunes et al , 2009) and has previously been used in the tourism context (Abdullah et al , 2021).…”

“…Note that, to keep with prior studies and to mitigate potential reverse causality, each of the preceding control variables is lagged one period (i.e. measured at year t-1 , whereas the dependent, is measured at year t ) (Abdullah et al , 2021; Tang et al , 2014; Van Cauwenberge et al , 2016).…”

The Effect of Distribution Channels’ Strategies and Types on Consumers’ Buying Behavior of Convenience Products

“…Direct distribution is considered as one of the most used product distribution techniques. The direct distributions were defined as when a corporation sells and transports its products directly to clients (Abdullah et al, 2021). That excludes the need to deal with a middleman, as the manufacturer communicates directly with customers during the buying process (Rambocas et al, 2015).…”

Smart hospitality: from smart cities and smart tourism towards agile business ecosystems in networked destinations

“…But even though hotels rely on intermediaries (Leung, 2019), relationships have traditionally been conflictual (Buhalis, 2000). While appreciating the business delivered, hotels largely resent the resulting commissions, with many instigating direct-booking campaigns to discourage third-party bookings (Abdullah et al , 2022).…”