Management Accounting Practices of Hotel Business in Thailand

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1 Management Accounting Practices of Hotel Business in Thailand Penpichcha Siriwiwattanakul, Chiang Rai Rajabhat University, School of Accounting, Thailand. Kanibhatti Nitirojntanad, Chulalongkorn University, Chulalongkorn Business School, Thailand. Abstract This objective of this study is to investigate the management accounting practices of medium and large-sized hotel business in Thailand. The data were collected from 245 accounting managers of medium and large-sized hotels located in major tourist attraction locations in Thailand. The study used questionnaires as an instrument tool to collect data. The data analysis techniques consist of descriptive statistics and ANOVA. The results of this study suggested that management accounting is a tool incorporated in the daily management practices of hotels in Thailand. This study found that traditional management accounting techniques including costing methods, cost measurement, decision making analysis, financial ratio analysis, budget planning, and performance evaluation are used frequently in hotels business in Thailand. Large-sized hotels tend to have a higher usage level of management accounting techniques than medium-sized hotels. Key words: Management accounting practices, Hotel business, Management accounting information JEL Classification: M 40, M 10 1

2 1. Introduction Thailand's tourism industry contributes between 9 and 10% of the country's GDP. While about 10 years ago, the industry contributed about 6.5% of Thailand's GDP. The number of tourists, and the number of tourist destinations and hotels contributes even more substantial portion of GDP. However, Thailand's tourism industry, while very visible, brings in less money than other service industries, and certainly less than its manufacturing industry because of its high competition. Management accounting is an important tool for supporting business decision making. Over the decades, there have been a number of studies concerning management accounting practices and management accounting issues. However, management accounting research in special service industry and hotel business remains scarced. According to Pavlatos and Paggios (2009), there is a growing desire to understand the practice of management accounting in hotels, having these techniques an important role in their decision-making process (Oliveira, C. Silva, Campelo, & A. Silva, 2008). The purpose of this study is to identify the management accounting practices of hotel business in Thailand and examine the difference of management accounting practices of medium-sized and large-sized hotel business in Thailand. The number of rooms is the measure most commonly accepted as indicator of the size of hotels (Breiter & Bloonquist, 1998; Jones, 2002; Pestana & Mascarenhas, 2004; Sundgaard, et al., 1998). In this study, hotels with rooms are considered medium-sized. Large-sized hotels are those with at least 300 rooms. 2. Literature Review As a consequence of several specificities of hotel business, the information required by managers to make decisions is different from other industries (Mia & Patiar, 2001). It is important that the use of management accounting information to allow the optimization of the decision making processes by hotel managers, due to the fact of them facing a big competition (Downie, 1997). Hotels have two sources of information including market research and accounting information. The ideal is that this information could be aligned and coordinated thus supporting the managers (Downie, 1997). This economic activity is characterized by having a great volatility in demand and fixed costs structure, perishable goods, high competition and a great diversity of services due to the heterogeneity of clients (Downie, 1997; Mia & Patiar, 2001). Management accounting practice in hotel business has been an issue of research interest in many countries. For example, Pavlatos and Paggios (2009) surveyed 85 leading hotels in Greece. The results indicated that traditional management accounting techniques (e.g. budgeting practices, profitability measures, product profitability analysis, customer 2

3 profitability analysis absorption costing, and nonfinancial measures for performance evaluation) were found to be more widely adopted than recently developed management accounting techniques. Santos, Gomes & Arroteia (2012) examined management accounting practices in the portuguese lodging industry and found that the adoption of management accounting techniques by the hotels is positively related to the fact of the hotels being subsidiaries of a multinational hotel chain, as well as their annual turnover. The findings confirm the conclusions of Clarke, Hill & Stevens (1999), Adler, Everett & Waldron (2000), Cadez and Guilding (2008). Urquidi & Ripoll (2013) examined the choice of management accounting techniques in the hotel sector in Spain using contingency theory. The results indicated that the need for adequate, concise and specific information in five-star hotels has increased the emergence of new management acounting techniques. In Asia, Sunarni (2014) studied management accounting practices that highly adopted byof the hotels business in Yogyakarta city in Indonesia and found that the top two management accounting practices were traditional management accounting practices including budgeting for controlling costs and profitability measures. 3. Research Hypothesis The size of the firm is an organizational characteristic which, in the case of hotels, is difficult to modify. Greater size brings with it a greater volume of assets, and the economic consequences of the management of these assets, both positive and negative, are more notable. For this reason, larger firms usually require more professionalized management and better qualified managers. Size is a variable that influences both the organization s knowledge of new management accounting techniques and their implementation. Organizations of larger size need more sophisticated control and information systems (Innes & Mitchell, 1994; Khandwalla, 1972; Merchant, 1981). Furthermore, the larger organizations face more problems of control, and organizations need ever more and better information, so it will be those of largest size that will employ most sophisticated management techniques (Abdel-Maksoun, 2004). We therefore develop the following hypothesis: H1. The management accounting practices of large-sized hotels are different from those of the medium-sized hotels. 4. Data The data were collected from 245 accounting managers of medium and large-sized hotels located in major tourist attraction locations in Thailand. The sample are selected based on location including Bangkok (central region), Cheingmai (northern region), Cholburi (eastern region), and Phuket (southern region). The study used questionnaires as an instrument tool to collect data. The survey questionnaire are divided into three parts including company 3

4 characteristics, general information on the company s management accounting practices, and usage level of management accounting techniques. 5. Results and Discussion The data analysis techniques consist of descriptive statistics and ANOVA. The results indicate that management accounting techniques employed for costing system include absorption costing, variable costing and activity-based costing. The techniques mostly employed for performance evaluation include responsibility accounting and returns on investment. The techniques frequently used for profit planning and controlling include budgeting, flexible budgets and variance analysis. Net present value, break-even analysis, payback period, average rate of return, as well as economic order quantity are used for management decision-making. The results are presented in Table 1. Table 1: Management accounting techniques used by medium-sized and large-sized hotels Level of Usage N Mean Standard Deviation Standard Error Mean Costing Method Absorption Costing Medium-sized Hotels Large-sized Hotels Variable Costing Medium-sized Hotels Large-sized Hotels Activity Based Costing Medium-sized Hotels Large-sized Hotels Cost Measurement Actual Cost Medium-sized Hotels Large-sized Hotels Normal Cost Medium-sized Hotels Large-sized Hotels Standard Cost Medium-sized Hotels Large-sized Hotels Decision Making Analysis Break-even Medium-sized Hotels Analysis Large-sized Hotels Economic Order Quantity (EOQ) Medium-sized Hotels Large-sized Hotels Payback Period Medium-sized Hotels Large-sized Hotels Net Present Value (NPV) Internal Rate of Return (IRR) Average Rate of Return (ARR) Financial Ratio Analysis Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels

5 Level of Usage N Mean Standard Standard Error Deviation Mean Liquidity Analysis Medium-sized Hotels Large-sized Hotels Operating Efficiency Analysis Profitability Analysis Capital Structure Analysis Budget Planning Short-term Budget Planning Long-term Budget Planning Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Flexible Budget Medium-sized Hotels Large-sized Hotels Performance Evaluation Standard Cost Medium-sized Hotels Variance Analysis Large-sized Hotels Performance Measurement Responsibility Accounting Return on Investment (ROI) Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Medium-sized Hotels Large-sized Hotels Table 2: Testing of mean difference between management accounting techniques used by medium-sized and large-sized hotels. Levene's Test for Equality of Variances t-test for Equality of Means F Sig. t df Sig. (2- tailed) Mean Std. Error Costing Method Absorption Costing Variable Costing Activity Based Costing Cost Measurement Actual Cost * * * * *

6 Normal Cost Standard Cost Decision Making Analysis Break-even Analysis Economic Order Quantity (EOQ) Payback Period Net Present Value (NPV) Internal Rate of Return (IRR) Average Rate of Return (ARR) Financial Ratio Analysis Liquidity Analysis Operating Efficiency Analysis Profitability Analysis Capital Structure Analysis Levene's Test for Equality of Variances F Sig. t df t-test for Equality of Means Sig. (2- tailed) Mean Std. Error * * * * * * * * * * * * * * * Budget Planning Short-term Budget * Planning * Long-term

7 Budget Planning Flexible Budget Proceedings of the Fourth European Academic Research Conference on Global Business, Economics, Performance Evaluation Standard Cost Variance Analysis Performance Measurement Responsibility Accounting Return on Investment (ROI) * p-value < 0.05 Levene's Test for Equality of Variances F Sig. t df t-test for Equality of Means Sig. (2- tailed) Mean Std. Error * * * * For the hypothesis testing, this study employed ANOVA to test whether the management accounting practices of large-sized hotels are different from those of the medium-sized hotels. The results of t-test statistics are shown in Table 2. The results suggest that medium-sized and large-sized hotels in Thailand are somewhat different in the management accounting practices as follows. 1. For costing methods, the uses of absorption costing are not different for medium-sized and large-sized hotels whereas the uses of variable costing and activity-based costing in large-sized hotels are higher than medium-sized hotels. 2. For cost measurement, the uses of normal cost are not different for medium-sized and large-sized hotels whereas the uses of actual cost and standard cost in large-sized hotels are higher than medium-sized hotels. 3. For decision making analysis techniques, the uses of payback period, net present value (NPV), and average rate of return (ARR) are not different for medium-sized and largesized hotels whereas the uses of break-even analysis, economic order quantity (EOQ), and internal rate of return (IRR) in large-sized hotels are higher than medium-sized hotels. 4. For financial ratio analysis, the uses of capital structure analysis is not different for medium-sized and large-sized hotels whereas the uses of liquidity analysis, operating 7

8 efficiency analysis, and profitability analysis in large-sized hotels are higher than medium-sized hotels. 5. For budget planning, the uses of long-term budget planning and flexible budget are not different for medium-sized and large-sized hotels whereas the uses of short-term budget planning in large-sized hotels are higher than medium-sized hotels. 6. For performance evaluation, the uses of standard cost variance analysis and responsibility accounting are not different for medium-sized and large-sized hotels whereas the uses of performance measurement and return on investment (ROI) in large-sized hotels are higher than medium-sized hotels. 6. Conclusions and Recommendations The results of this study indicated that management accounting is a tool incorporated in the daily management practices of hotels in Thailand. Large-sized hotels tend to have a higher usage level of management accounting techniques than medium-sized hotels. The results are contradict to Urquidi, & Ripoll (2013) which suggested no relationship between the size of hotels and management accounting practices. This study found that traditional management accounting techniques including costing methods, cost measurement, decision making analysis, financial ratio analysis, budget planning, and performance evaluation are used frequently in hotels business in Thailand which is consistent with previous research from Pavlatos and Paggios (2008) and Santos, Gomes & Arroteia (2012), where similar evidences were found in Greek hotels and Portuguese Lodging Industry, respectively. References Adler, R., Everett, A., & Waldron, M. (2000). Advanced Management Accounting Techniques in Manufacturing: Utilization, Benefits and Barriers to implementation. Accounting Forum, 24(2), Cadez, S., & Guilding, C. (2008). An Exploratory Investigation of on Integrated Contingency Model of Strategic Management Accounting. Accounting, Organization and Society, 33, Clarke, P., Hill, N., & Stevens, K. (1999). Activity-based Costing in Ireland: Barriers to, and Opportunities for, Change. Critical Perspectives on Accounting, 10(4), Cruz, I. (2007). How Might Hospitality Organizations Optimize Their Performance Measurement Systems? International Journal of Contemporary Hospitality Management, 19(7), Danubianu, M., & Hapenciuc, V.C. (2008). Improving Customer Relationship Management in Hotel Industry by Data Mining Techniques. Retrieved September 11, 2012, from feaa.ucv.ro/annals/v7_2008/0036v7-015.pdf. Dent, J. (1996). Global Competition: Challenges for Management Accounting and Control. Management Accounting Research, 7, Downie, N. (1997). The Use of Accounting Information in Hotel Marketing Decisions. International Journal of Hospitality Management, 16 (3), Frew, A.J. (2000a). Information Technology and Tourism: a Research Agenda. Information Technology & Tourism, 3 (2), Frew, A.J. (2000b). Information and Communications Technology Research in the Travel and Tourism Domain: Perspective and Direction. Journal of Travel Research, 39 (2),

9 Innes, J., & Mitchell, F. (1995). A Survey of Activity -based Costing in the U.K. s Largest Companies. Management Accounting Research, 6(2), Jones, C. (2002). Facilities Management in Medium-size UK Hotels. International Journal of Contemporary Hospitality Management, 14(2), Khandwalla, P. (1972). The Effects of Different Types of Competition on the Use of Management controls. Journal of Accounting Research, Kim, T.G., Lee, J.H., & Law, R. (2008). An Empirical Examination of the Acceptance Behaviour of Hotel Front Office Systems: an Extended Technology Acceptance Model. Tourism Management, 29 (3), Lam, T., Vincent, C., & Quc, H. (2007). A Study of Hotel Employee Behavioral Intentions towards Adoption of Information Technology. Hospitality Management, 26, Law, R., & Jogaratnam, G. (2005). A Study of Hotel Information Technology Applications. International Journal of Contemporary Hospitality Management, 17 (2/3), Lee, S. C., Barker, S., & Kandampully, J. (2003). Technology, Service Quality, and Customer Loyalty in Hotels: Australian Managerial Perspectives. Managing Service Quality, 13 (5), Lee, S., & Kim, W. (2009). EVA, refined EVA, MVA, or Traditional Performance Measures for the Hospitality Industry. International Journal of Hospitality Management, 28, Merchant, K. (1981). The Design of the Corporate Budgeting System: Influences on Managerial Behaviour and Performance. Accounting Review, 56, Mia, L., & Patiar. A. (2001). The Use of Management Accounting Systems in Hotels: an Exploratory Study. Hospitality Management, 20, Pavlatos, O., & Paggios, I. (2007). Cost Accounting in Greek Hotel Enterprises: An Empirical Approach. TOURISMOS: An International Multidisciplinary Journal of Tourism, 22, Pavlatos, O., & Paggios, I. (2008). Management Accounting Practices in the Greek Hospitality Industry. Managerial Auditing Journal, 24(1), Pavlatos, O., & Paggios, I. (2009). A Survey of Factors Influencing the cost System Design in Hotels. International Journal of Hospitality Management, 28, Edições Sílabo, Lisbon. Pestana, C., & Mascarenhas, M.J. (2004). Technical and Allocative Efficiency in Chain of Small Hotels. Hospital Management, 24(3), Phillips, P. A. (1996). Strategic Planning and Business Performance in the Quoted UK Hotel Sector: Results of an Exploratory Study. International Journal of Hospitality Management, 15(4), Santos, L., Gomes, C. & Arroteia, N. (2012). Management Accounting Practices in the Portuguese Lodging Industry. Journal of Modern Accounting and Auditing, 8(1), Schmidgall, R., Borchgrevink, C., & Zahl-Begnum, O. (1996). Operations Budgeting Practices of Lodging Firms in the United States and Scandinavia. International Journal Hospitality Management, 15(2), Sunarni, Christina Wiwik. (2014). Management Accounting Practices at Hospitality Business in Yogyakarta, Indonesia. Review of Integrative Business & Economics Research, 4(1), Sundgaard, E., Rosenberg, L., & Johns, N. (1998). Typology of hotels as individual players: the case of Bornholm, Denmark. International Journal of Contemporary Hospitality Management, 10, Urquidi, Ana C. & Ripoll, Vicente M. (2013). The Choice of Management Accounting Techniques in the Hotel Sector: The Role of Contextual Factors. Journal of Management Research, 5(2), Williams, J., & Seaman, A. (2001). Predicting Change in Management Accounting Systems: National Culture and Industry Effects. Accounting, Organizations and Society, 26(4/5),

Management accounting practices in the Portuguese lodging industry

Management accounting practices in the Portuguese lodging industry Luís Lima Santos, Conceição Gomes, Nuno Arroteia Escola Superior de Turismo e Tecnologia do Mar, Instituto Politécnico de Leiria, Peniche,