Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

part of financial decisions. 
 
Key Words:
Internationalization; financial leverage; profitability; hotel strategy; strategic management 
INTRODUCTION 
As business expansion through franchises, management contracts, and strategic alliances is more common, 
internationalization has become a feasible and cost effective corporate growth strategy for hotel companies 
(Alexander & Lockwood, 1996). It offers an opportunity for a hotel of reputation to leverage its brand power in new 
markets. Dunning and McQueen (1982) argued “a trade mark of guaranteed quality provides a powerful competitive 
advantage for a firm, particularly where customers are purchasing the service in an unfamiliar environment.” 
Despite its importance, however, internationalization has not received much attention in the hospitality literature. 
The benefits of internationalization can be explained from a resource-based view (Hitt et al., 1997). They argued 
that, through diversification, firms could gain competitive advantages by exploiting market imperfections and 
sharing limited firm resources or skills across business units. The resource sharing among business units in turn 
facilitates exploitation of common sets of core competences to produce synergy. Internationalization, however, is 
not independent of other strategic corporate decisions. It usually interacts with financial decisions. As Bettis (1983) 
puts it, a successful corporate strategy requires both strategic and financial considerations. Barton and Gordon 
(1988) also argued that diversification strategy and financial leverage are closely related even after controlling for 
relevant firm-specific financial variables. They claimed that capital structure decisions are based on the values and 
goals of management in combination with external and internal factors. Therefore, the relationship between strategy 
and financial leverage reflects the complex, idiosyncratic nature of managerial behavior at the individual firm level 
(Barton & Gordon, 1988). This study aims to simultaneously examine internationalization strategies and financial 
decisions and their impact on company profitability. 
Extant studies have shown that firm profitability (Schmalensee, 1985) and financial leverage (Titman and 
Wessels, 1988) vary across industries. In addition, because of differences in business nature, theories and models 
developed primarily for the manufacturing industry might not be directly applicable to the service industry. For 
example, as a service provider, a hotel company is not able to totally relocate its production to lowest-cost regions 
because the production and consumption of service occurs in the same place at the same time. Thus, if hotel 
company-specific strategy is of interest, the relationship between internationalization and financial leverage and 
their implications for profitability should be re-examined for the hotel industry. Thus, this study proposed 
hypotheses and tested them using data from hotel companies. The major objectives of this study were 1) to 
simultaneously examine the effects of internationalization and financial leverage on financial performance in the 
hotel industry; 2) to investigate the relationships (curvilinear and reciprocal) between internationalization and 
financial leverage in the context of the hotel industry; 3) to test the moderating effect of financial leverage and 
internationalization on each other’s influence on profitability.

---