Does the asset-light and fee-oriented strategy create value?

During the past couple of decades, many hotel chains in the U.S. have shifted in their business strategy: whittling down properties while expanding the management or franchising business. We labeled such strategic shift as an “Asset-Light and Fee-Oriented (ALFO)” strategy and examined the theoretical and empirical effectiveness of the strategy. Theoretically, resource-based view and corporate finance theory predict competing implications of the ALFO strategy, calling for a study for validating the net benefits of the strategy. Our results indicate that expanding fee business and decreasing fixed asset intensity have a positive impact upon firm value. Using path analysis, we further verified the working mechanism of the ALFO strategy. The strategy is effective in lifting profitability, mitigating earnings volatility, and thereby contributing to firm's market premium.