Chapter 20 - Investment appraisal issues arising in hotels governed by a management contract

Abstract

The breadth and depth of prior studies that have investigated the nature and context of investment appraisal activity is evident from Dempsey’s (2003) review of the evolution of investment appraisal research. Dempsey classifies investment appraisal research according to three disciplinary perspectives: finance, management accounting and strategic management. He sees the finance research tradition as exhibiting an economic theoretical orientation. Examples of research conducted within this tradition tend to have a highly mathematical orientation and include work based on the capital asset pricing model (Ross, 1978) and real options theory (Cortazar and Casassus, 1998; Pinches, 1998). Investment appraisal research conducted within the management accounting tradition frequently involves qualitative case analysis in an attempt to shed light on the context and procedures of capital budget allocation (e.g. Slagmulder, 1997; Carr and Tomkins, 1998). The strategic management oriented investment appraisal research is characterized by a focus on strategy development and application (e.g. Porter, 1985; Seal, 2001). The study reported herein explores how organizational issues specific to the hotel industry can affect investment appraisal procedures. In light of this, it can be best characterized as falling within the management accounting investment appraisal research tradition.