Study Of Application Of The Principal-agent Theory In Mandatory Administration Of Hotels

With China’s sharp rise in economy and tourism industry, more and more investors athome and abroad have been attracted by the market of tremendous growth potential.Taking into account the complexity of management of an upscale hotel, investors tend totrust a hotel management company of brand image and reputation to operate in order toensure the return on investment. Mandatory administration is becoming one of keyoperation models in the hotel industry throughout the country.However, interest preferences between investors and hotel management companiesdivide so that problems related to agency spring up. Investors (owners) are committed tothe pursuit of the benefits of both management and property while the hotel managementcompanies are focused on management fees and the brand. Their interests may divideduring co-operation and management so that conflicts arise. With models of mandatoryadministration of hotels as the study object, this paper tried to explore how to avoid andreduce conflicts accompanied by mandatory administration of hotels in China. Base ontheoretical analysis, this paper, with Taicang LD Hotel as a case study, made an empiricalanalysis of entrusted procedures, management contracts, mechanisms of benefitdistribution and so on with the anticipation of applying the results in practice and benigncooperation between owners and companies.Research shows that success of hotel management results from balanced benefits of ownersand companies only if both parties select proper business partners for cooperation, understandand tolerate their respective interests while negotiating over the terms of the contract, and trustand respect each other to achieve positive interaction and win-win for a long-term.