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.