The relationship between convention hosts and professional conference organizers

International Journal of Hospitality Management 28 (2009) 556–562

Contents lists available at ScienceDirect

International Journal of Hospitality Management journal homepage: www.elsevier.com/locate/ijhosman

The relationship between convention hosts and professional conference organizers Lee Hye-Rina, Bob McKercher a,*, Samuel Seongseop Kim b a b

School of Hotel and Tourism Management, The Hong Kong Polytechnic University, Hung Homg, Hong Kong SAR, China Department of Hospitality and Tourism Management, Sejong University, Seoul 143-747, Republic of Korea

A R T I C L E I N F O

A B S T R A C T

Keywords: Convention PCO Agency theory

It is common for host organizations that operate conventions to employ professional conference organizers (PCOs) to perform a variety of professional services relating to the organization, management and operation of the event. As such, a productive relationship between the host and PCO is essential to the successful operation of the event. Yet, the relationship is often strained as the host organization may feel uncertain about the selection of the PCO or may have reservations about its performance. Such an arrangement represents a classic principle–agent relationship that can be examined through agency theory. This study examines this relationship from the perspective of the host organization. It found that hosts do express concerns about adverse selection and moral hazard, but that these concerns can be mitigated by a series of pre- and post-contract awarding control measures. ß 2009 Elsevier Ltd. All rights reserved.

1. Introduction The convention industry has grown into a major force in tourism and hospitality (Weber, 2001a,b). Research into this phenomenon has tended to focus on a limited range of topics relating primarily to site selection (Clark and McCleary, 1995; Crouch and Ritchie, 1998; Fortin and Ritchie, 1977; Jun and McCleary, 1999; Montgomery and Strick, 1995; Qu et al., 2000), decision-making process (Clark and McCleary, 1995; Oppermann and Chon, 1997), destination image (Oppermann, 1996; Baloglu and Love, 2005) and satisfaction (Show et al., 1991; Campbell and Shaw, 2000). One area that has received relatively little attention is the relationship between the host organization and professional convention organizers (PCOs). In America, a PCO is often refereed to as an ‘Independent Planner’. Yet the successful operation of an event relies on a productive relationship being formed between these two stakeholders. The lead author worked as a PCO in Korea for many years. She found that tensions often arose between parties fuelled in part by the organizer’s lack of trust about and respect for the capabilities of the PCO. In turn, this opinion raised concerns that the PCO was more likely to act in its own selfinterests, rather than meeting the needs of the host. Host organizations, therefore, realize the need to use PCOs, but often

* Corresponding author. E-mail addresses: [email protected] (H.-R. Lee), [email protected] (B. McKercher), [email protected] (S.S. Kim). 0278-4319/$ – see front matter ß 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.ijhm.2009.03.006

engage them reluctantly. The causes of and possible solutions to this strained relationship have received little attention in the convention literature. This study examines the relationship between organizing association and PCOs using agency theory. It does so from the context of the host organization. In all instances, the host organization was a not-for-profit association that held meetings and conferences infrequently, usually on an annual basis. 2. Agency theory Agency theory, or principal–agent theory, provides a useful perspective to examine business exchanges where principals hire professional service organizations to perform certain duties for them (Sharma, 1997). Jensen and Meckling (1976) define it as a relationship between a principal and an agent in which the principal employs the agent to perform commissioned services, often including some decision-making functions. A principal– agent relationship is said to exist whenever one party depends on another to undertake some action on the principal’s behalf (Bergen et al., 1992; Guilding et al., 2005). Agency relationships are, arguably, one of the oldest and most common codes of social interaction (Ross, 1973), where a principal employs agents to cooperate with them to work toward their mutually beneficial goals (Donaldson, 1990). It has been used to explain relationships in a large number of sectors, including accounting (Bohren, 1998; Demski and Feltham, 1978), advertising (Waller, 2004; Zhao, 2005), economics (Logan, 2000), human resources management (Johnson and Droege, 2004), marketing (Bergen et al., 1992; Muller and Turner, 2005), organizational behavior (Eisenhardt, 1988,

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562

1989; Kunz and Pfaff, 2002), sports (Mason and Slack, 2003) and tourism (Guilding et al., 2005). It has not been used in the convention sector, even though the practice is common. PCOs are hired either because of their greater expertise in performing certain aspects related to convention planning and operation or because it is more time and cost efficient to outsource some tasks to them rather than doing it in-house (Macdonald, 1984). Fig. 1 shows agency theory’s basic terms and constructs as derived from the literature (Bergen et al., 1992; Eisenhardt, 1985, 1989; Jensen and Meckling, 1976; Mishra et al., 1998; Sharma, 1997). For ease of description, five major elements have been identified along with citations verifying their validity: agency relationship (Jensen and Meckling, 1976; Jensen, 2000; Pratt and Zeckhauser, 1987; Saam, 2007); pre-client control (Bergen et al., 1992; Muller and Turner, 2005; Sharma, 1997); agency problem (Arrow, 1985; Einsenhardt, 1989; Kim et al., 2005; Mitnick, 1975); post-client control (Bergen et al., 1992; Muller and Turner, 2005; Sharma, 1997); and relationship performance (Aulakh et al., 1996; Mason and Slack, 2003). Their interrelationships are shown in the figure, which reads from left to right. Information asymmetry and self-interest are foundation principals in agency–principal theory. Adverse selection and moral hazard are the initial outcome risks or problems that can arise from a poor relationship. They can be minimized or mitigated by a range of client mechanisms adopted prior to selecting the agent. If these mechanisms fail, or if a poor decision is made, then a range of post-contract award measures can be adopted to mitigate the chance of a poor performance. Performance can be measured through trust and compensation. Successful relationships are based on goal congruence, where each party works to a common goal, while achieving their own individual goals. Thus trust, that each party will work in good faith to achieve this outcome and the development of a trust-based relationship lies at the heart of any successful agent–principal relationship (Han et al., 1993). However, goal conflict, where parties work selfishly toward their own goals, is both an inherent risk and a real potential outcome of these types of relationships (Ouchi, 1979; Eisenhardt, 1989). Agency theory seeks to understand why goal incongruity can exist and how to mitigate or moderate it (Jensen, 2000). The realization of the need for a principal to seek outside assistance from an agent, potentially places the principal at a power disadvantage, for it acknowledges its reliance on the superior expertise of or knowledge held by the agent. Agents can

557

potentially abuse this imbalance through information asymmetry (‘‘hidden information’’) or self-interest (‘‘hidden action’’). Because they are ‘‘very real problems in many organizations’’ (Bohren, 1998: 748), they are seen as the two antecedents of potential conflict relationships (Bergen et al., 1992). Each is discussed briefly below. Information asymmetry relates to inequities in the amount of information held by each party. Gallouj (1997) categorizes identifies five dimensions of this phenomenon: accurate capability and experience of the agent, service skills that agent will provide, quality and content of the service to be provided, effort and available resources of the agent and lastly, external factors affecting service efficiency. It can arise because the principal cannot fully determine the competencies, intentions, knowledge, and actions of the agent (Saam, 2007). It can occur intentionally or unintentionally in spite of contractual obligations (Fama, 1980). Imbalances in the agent’s favor create a consequential power imbalance, leading to uncertainty by the client about the agent’s true intents and subsequent actions (Mason and Slack, 2003; Turner and Muller, 2004), referred to more commonly as selfinterest. The agent may be more interested in pursuing its needs narrowly, rather than addressing the needs of the client. It is common in the convention sector where the principal faces the ironic situation that superior knowledge of the body being hired may place the principal at a disadvantage (Jensen and Meckling, 1976). Self-interest and information asymmetry can manifest themselves in two major types of resultant problems: adverse selection and moral hazard (Baker and Faulkner, 1991; Bergen et al., 1992; Gallouj, 1997; Lal and Staelin, 1986; Mitchell, 1994; O’Farrell and Moffat, 1991; Provan et al., 1989; Sharma, 1997). Adverse selection reflects choosing the ‘wrong’ agency for the task. It can occur when the principal cannot accurately determine the agent’s ability to perform the desired duties. Agents may send false or misleading signals about their abilities to perform the task at hand (Mishra et al., 1998; Spence, 1973), by either overstating their qualifications or hiding their weaknesses, causing the principal to select a less qualified agent. Moral hazard occurs when the principal has difficulties in determining whether the agent is undertaking assigned work properly. In some cases the agent may not perform the work requested. In other instances, it may choose an alternative, more expensive path, resulting in unnecessary costs to the principal.

Fig. 1. Conceptualizing the principal–agent relationship.

558

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562

The literature suggests the principal can reduce the risk of adverse selection and moral hazard through a series of precontract awarding client control measures designed to ensure the best candidate is selected, or, alternatively through a series of postcontract mechanisms to reduce or mitigate adverse consequences after the agent has been chosen (Sharma, 1997). Pre-contract control measures include screening to reveal hidden traits, verifying references and seeking peer comments of the performance of agents. The principal can also adopt a number of internal strategies to reduce self-selection opportunism by the agent through the development of clear selection criteria, competitive bidding processes and other actions. While they can reduce risk, they cannot eliminate it entirely (Anderson and Oliver, 1987; Bergen et al., 1992; Lal and Staelin, 1986; Mishra et al., 1998; Spence, 1976). Post-contract monitoring is often required to ensure the selected agent performs the tasks required. Again a series of measures are identified including regular and frequent contacts between agent and principal working closely with the agent, even if the entire organizational function has been outsourced and identifying and resolving issues as they arise (Bergen et al., 1992, Eisenhardt, 1989; Jensen and Meckling, 1976; Ouchi, 1978; Sharma, 1997). Ultimately, principal–agent relationships can be judged by the relationship performance. The literature identifies two outcomes: compensation and trust. Reward or compensation is identified as a method to establish a sustainable relationship (Mishra et al., 1998; Zhao, 2005), whereby incentives or bonuses are paid to agents who reach or exceed specified performance objectives (Kunz and Pfaff, 2002; Koh, 2002). Some people may argue that this approach represents another control mechanism through the threat of non-payment for poor performance, but the literature suggests it is more than that. The agent may receive full payment even if the task is not performed acceptably. However, the nature of an incentive system of offering an additional reward to the agent provides an additional impetus for the agent to satisfy the needs of the principal (Lal and Staelin, 1986). It can lead to the establishment of efficient relationship (Anderson and Oliver, 1987). Trust is the other indicator of an effective relationship (Anderson and Narus, 1990; Chon, 1995; Crosby et al., 1990; Dwyer and Oh, 1987; Shurr and Ozanne, 1985). It is usually established, through repeated positive experiences between the agent and the principal, whereby the agent understands the principal’s needs and the principal has faith in the agent’s ability to serve its interests. The establishment of a long-term oriented, efficient relationship (Baker and Faulkner, 1991; Sharma, 1997) restricts opportunistic behavior and helps the agent to provide service at an efficient cost (Bergen et al., 1992; Morgan and Hunt, 1994). Adverse selection and moral hazard leading to an unsuccessful relationship are the products of information asymmetry and selfinterest. They can be mitigated somewhat through effective precontract controls to enhance screening and eliminate self-selection opportunity. Ongoing post-contract monitoring can also mitigate the possible adverse consequences should adverse selection or moral hazard arise. In the end, successful relationships are those where a trusting relationship is formed or where performance earns an additional financial reward. This model indicates how relationships can be developed and managed, in spite of the recognized power imbalance between players and the likelihood that goal incongruity can exist. Incentive systems do not always work (Tosi et al., 2000), for as Fong and Tosi (2007) note, their efficacy is influenced by the agency’s level of conscientiousness. Additionally, the costs of designing of appropriate incentives and compensation systems can be high (Balkin and Gomez-Mejia, 1990; Wright et al., 2001).

Not all relationships work. The fault can be perceived to lie with either the principal or the agent. LaBahn and Kohli (1997) discuss how the principal can influence an agency’s performance. If, for example, the principle is indecisive, the agent may decide to terminate the contract in the middle instead of risking its own professional reputation. Likewise, the principal may elect to release an agent for non-performance. This latter step is rare, though, for the principal may incur significant legal costs and more importantly, significant time costs to recruit a new agent (Fama and Jensen, 1983). Instead, it has been one of the author’s experience that rather than releasing agents, the contract is completed, but the agent is not hired again for subsequent tasks. This could explain why LaBahn and Kohli (1997) note that little research has been conducted on failed agency–client relationships. 3. Method This study tested that relationship between agents and Korean associations that organized domestic conventions in 2004 and 2005. Associations assume the role of a principal and act as ‘‘buying centers’’ for convention hosting and management decision-making (Clark et al., 1996, p. 73; Clark and McCleary, 1995; Moon and Tikoo, 2002; Tanner, 1999). However, associations are unique in that their not-for-profit status and reliance of volunteers, means that there is rapid turnover in key decision makers, often on an annual basis. As such, they are especially vulnerable to opportunistic behavior of the agents. The list of potential respondent organizations was derived from the annual report published by Korea Convention Association (Convention Organizer Survey, 2006). A total of 329 organizations hosted a convention during the study time frame. Telephone calls were made to each of the organizations to identify the key informant in each association. Key informants are defined as the person or persons most responsible for the convention. A total of 500 such people were identified and subsequently surveyed. The survey pretest was carried out in early September, 2006, with the formal survey being conducted in late September and October, 2006. A self-administered questionnaire was distributed and collected in person by the lead author who visited each of the organizations. A total of 354 surveys were collected. Data cleaning resulted in the subsequent exclusion of 50 questionnaires due to substantial amounts of missing data, resulting in a usable sample size of 304, representing a 60.8% response rate. The authors acknowledge the potential that the findings may not be generalizable due to the focus on not-for-profit associations. However, since associations dominate the total conventions and meetings industry (Baloglu and Love, 2003), account for 74% of total meeting expenditure, 78% of all attendees, and 80% of all conventions and meetings (Edelstein and Benini, 1994), it is believed the results discussed below are important. A self-response questionnaire was used. The survey instrument was developed from existing sources, and the pilot study identified 49 possible measures or variables across the nine constructs or dimensions measured. However, the results revealed a number of redundant or non-significant variables that were subsequently removed from the final instrument. In the end, the final questionnaire used 37 items, each rated on a 7-point Likert scale ranging from 1 (strongly disagree) to 7 (strongly agree). Demographic questions covered factors including respondent’s age, gender, educational level, department, length of convention industry career, last contract duration with PCO and position. ‘SPSS for Windows’ was used to analyze the data. Exploratory factor analysis and Cronbach’s a were used to confirm the conceptual validity and reliability of measurement variables used. The Cronbach’s a for the 9 constructs were: information

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562 Table 1 Measurement model results. Elements (items)

Standardized factor loadingsa

559

Table 2 Profile of respondents. t-Value (CR)b

Principal–agent relationship Inf4 .559 6.647 Inf5 .625 6.639 Inf6 .663 –c Selfint1 .644 8.434 Selfint2 .743 –c Selfint3 .655 8.496 x2 = 35.534 (d.f. = 8, p = 0.000), x2/d.f. = 4.442, NFI = 0.909, TLI = 0.863, CFI = 0.927, RMSEA = 0.107 Agency-problems Adverse2 .524 6.222 Adverse3 .842 –c Adverse4 .597 6.474 Mo6 .642 –c Mo7 .656 5.489 Mo8 .491 5.479 2 2 x = 15.080 (d.f. = 8, p = 0.058), x /d.f. = 1.885, NFI = 0.948, TLI = 0.952, CFI = 0.974, RMSEA = 0.054 Client-control Sc1 .472 5.510 Sc2 .691 –c Sc3 .603 5.594 Sel1 .606 3.856 Sel2 .590 –c Moni2 .478 4.985 Moni3 .684 –c Moni4 .561 5.117 x2 = 24.623 (d.f. = 17, p = 0.103), x2/d.f. = 1.448, NFI = 0.918, TLI = 0.954, CFI = 0.972, RMSEA = 0.038 Relationship performance Tr4 .583 6.497 Tr5 .776 –c Tr6 .544 6.356 Com1 .679 8.754 Com2 .809 –c Com3 .619 8.442 x2 = 18.203 (d.f. = 8, p = 0.020), x2/d.f. = 2.275, NFI = 0.953, TLI = 0.949, CFI = 0.973, RMSEA = 0.065

SMC .312 .390 .440 .415 .553 .429

.275 .709 .357 .412 .430 .242

.223 .478 .364 .368 .348 .228 .467 .315

.340 .601 .296 .462 .655 .384

a

All factor loadings are significant at p < 0.000. All indicators (CR) are significant at p < .05. c Fix the parameter estimate of measured variables in measurement model as 1. b

asymmetry (.65), self-interest seeking (.72), moral hazard (.68), adverse selection (.68), screening (.72), self-selection opportunity (.68), monitoring (.69), trust (.66) and compensation (.74). The results are considered reliable when used for measuring each construct. Each of the four thematic concepts, principal–agent relationship, agency problems, client control and relationship performance, was then tested for unidimentionality using confirmatory factor analysis. Table 1 summarizes the other tests that were used to verify the validity of the data. Overall, CR value of 1.96 (p < 0.05) appeared to be valid. Standardized factor loading values and squared multiple correlation (SMC) between measurement variables and research concepts were monitored to analyze convergent validity (Bollen, 1989). The standardized factor loading values and CR value of SMC were both above 1.96 (p < 0.05) and thus were valid. To evaluate overall fit of the CFA model, six fit indexes (x2 (d.f., p), x2/d.f., Normed Fit Index (NFI), Tucker–Lewis Index (TLI), Comparative Fit Index (CFI), and Root Mean-Squared Error of Approximation (RMSEA)) were used to how well the measurement and structural model fit the data collected. Inspection of the goodness-of-fit indices indicated that the data supported the hypothesized framework. Structural equation modeling (SEM) was then carried out to determine the relationship between the nine constructs. The findings are shown in Fig. 2 and Table 2. SEM provides a variety of overall measures to assess how much the relationships specified in

n

%

Gender Male Female

59 245

19.4 80.6

Age 20–29 30–39 40–49 50 or more

94 127 57 26

30.9 41.8 18.8 8.6

Education level College and university degree Master’s degree

261 43

85.9 14.1

Experience Less than a year 1–3 years 3–5 years 6–10 years More than 10 years

152 62 32 46 11

50 20.4 10.5 15.1 3.6

a model differ from those relationships found in the data. The maximum likelihood (ML) method was applied to obtain estimates for the research model’s goodness-of-fit indices and population parameters. Generally, a good fit exists when there is a statistically non-significant chi-square, that is, the difference between the relationships implied by the model and those found in the sample data is small. Since chi-square is sensitive to sample size, relative chi-square (x2/d.f.) was used. The NFI of 0.90 and TLI of 0.92, suggests the model is suitable for explaining the relationship between concepts. 4. Findings The profile of respondents is discussed briefly below (Table 2). Eighty-five percent (85%) were college graduates and most (81%) were women. About 41% were in their 30s. About 20% had been employed in their organization for less than 1 year; one-third (33%) for 2 years; about one quarter (24%) for 3 years; and the rest (24%) for 4 or more years. The majority of respondents, therefore, would have had 2 years’ experience or less in organizing conventions for their associations. Most of these organizations held an average of one convention a year or less. By comparison, the role of the PCO is to organize and run such events. A typical PCO, according to the lead author would be involved in dozens of events a year and, further, most had many years’ experience. Thus, a real expertise gap existed between the organizer and the PCO, which likely contributed to a sense of a power or knowledge imbalance. The results of the SEM model (Fig. 2 and Table 3) revealed significant relationships between the agent-principal dimensions (information asymmetry and self-interest), pre-contract client controls measures (screening and self-selection opportunism) and resultant agency problems (adverse selection and moral hazard). Significant positive relationships were found between each of information asymmetry and self-interest and adverse selection and moral hazard, respectively, where no control measures were instituted. Information asymmetry was analyzed to significantly affect adverse selection (b = 0.79, t = 2.59) and moral hazard (b = 0.98, t = 2.88). Effect of pursuit of self-interest on adverse selection (b = 0.81, t = 2.91) and moral hazard (b = 0.81, t = 2.74) was also deemed significant. The study also suggests that the greater the perceived knowledge and self-interest gap, the higher likelihood that organizers will perceive the risk of adverse selection and moral hazard. This finding confirms the lead author’s observations about suspicions many principals have about the suspected motives of many PCOs.

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562

560

Fig. 2. Factors influencing principal–agent relationship.

It further suggests that the PCO sector suffers from a perceived credibility gap that the sector must address. However, the implementation of effective control measures can reduce significantly the perceived risk. Screening, in particular, is especially effective in reducing both adverse selection and moral hazard for both dimensions of the agency relationship. Controlling for self-selection opportunism also was seen to reduce the risk of adverse selection, and was seen to be a significant factor in reducing moral hazards. The result of analysis on relationship between agent problem and control activities prior to the contract, for example, showed that screening has a significant negative effect on the perceptions of risk associated with both adverse selection (b = 0.49, t = 3.13) and moral hazard (b = 0.25, Table 3 Structural model results. Path

Standardized t-Value

! Adverse selection .79 2.59* Parameter estimate (b) Information asymmetry ! Moral hazard .98 2.88* Self-interest ! Adverse selection .81 2.91* Self-interest ! Moral hazard .81 2.74* Information asymmetry ! Screening .73 3.65** Information asymmetry ! Self-selection opportunity .84 3.59* Self-interest ! Screening .66 3.59* Self-interest ! Self-selection opportunity .71 3.42* Screening ! Adverse selection .49 3.13* Screening ! Moral hazard .25 1.69** Self-selection opportunity ! Adverse selection .49 2.52* Self-selection opportunity ! Moral hazard .35 1.81** Adverse selection ! Monitoring .04 0.38 Adverse selection ! Trust .04 0.44 Adverse selection ! Compensation .13 1.67* Moral hazard ! Monitoring .18 1.75** Moral hazard ! Trust .04 0.44 Moral hazard ! Compensation .12 1.44 Monitoring ! Trust .26 2.60* Monitoring ! Compensation .03 0.28 x2 = 369.299 (d.f. = 268, p = 0.000), x2/d.f. = 1.378, NFI = .82, TLI = .92, CFI = .94, RMSEA = 0.04 * **

p < .05. p < .01.

t = 1.69). The research further suggests that providing selfselection opportunity has significant negative effect on adverse selection (b = 0.49, t = 2.52) and moral hazard (b = 0.35, t = 1.81). In other words, organizers can carry out two strategies – screening in the pre-contract phase and provision of selfselection opportunity for PCOs – to control agency problems. These measures empower the principal, or at least serve to achieve a more balanced power relationship. In particular, pre-control measures seem to be most effective in reducing the risk of adverse selection. Post-control strategies, on the other hand proved useful only in controlling moral hazard. No significant relationship was noted between adverse selections. In addition, post-client control monitoring could improve trust but was not seen as a significant factor in relation to compensation. But, a significant relationship was noted between adverse selection and compensation. Monitoring is also shown to exert a significant positive effect on trust (b = 0.26, t = 2.60). However, it had no effect on compensation (b = 0.03, t = 0.28). This finding can be interpreted in one of the two ways. On the one hand, pre-client control can prove effective in ensuring the ‘right’ agent is selected, eliminating the necessity of much postclient control actions. On the other hand, it appears that postcontrol monitoring does not prove effective if a poor initial choice was made. In such situations, threat of financial consequences may prove to be the only effective measure to ensure the agents acts as desired. Post-control techniques do seem to exert a positive impact on reducing moral hazard and consequently improving the level of trust. These types of control activities can ensure the agent continues to act in the interests of the principal. By contrast no significant relationship was noted when the mediating variable of monitoring was eliminated. 5. Discussion and conclusions This study examined the relationships between conference organizers and PCOs from the perspective of the organizer. Agency relationship theory was used to develop a deeper understanding of the apparent animosity and lack of trust evident between

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562

organizers and PCOs. Two core causes of a poor relationship are identified in this theory, information asymmetry and self-interest, that can result in either selecting the ‘wrong’ agent or uncertainties about whether the agent will perform the desired tasks. The end result can be a poor relationship. The antecedent dimensions of information asymmetry and self-interest are inter-related, as are the consequential dimensions of adverse selection and moral hazard. Agency theory suggests that risk can be reduced through the application of various pre- and post-contract awarding control measures. The study revealed a number of interesting facets about the relationship between the PCOs and conference organizer groups. In particular, pre-contract screening is an especially useful tactic to reduce the risk of adverse selection and moral hazard. The benefits of post-contract control measures are more variable. Instead separate ‘carrot and stick’ strategies can be used to control agency performance. Ongoing contact with the agent can assuage fears held by the principal, and in doing so, lead to a trusting relationship; hence the carrot approach. But, threat of financial penalty, or non-payment of bonus can address adverse selection problems; hence the stick approach. The study has a number of implications for this sector. The skeptical attitude that many principals have about PCOs is understandable given both the experience imbalance between the principal’s staff member and the PCO staffer and the pecuniary nature of the relationship. The study revealed that the type of person assigned to organize a conference usually had limited prior experience, placing her at a knowledge disadvantage (Saam, 2007). Moreover, an inexperienced and possibly naı¨ve principal may not know how to set criteria to select the best PCO and then evaluate those criteria effectively, leading to an enhanced chance of adverse selection. In addition, PCOs charge substantial amounts of money for their services. Many of these tasks are ‘back of house tasks’ that are not readily transparent to the principal. Activities such as negotiating room rates, determining menus, site set up and tear down all have costs associated with them, that a principal may not see. This situation creates the potential for fear of agency selfinterest. Screening and reducing the risk of self-selection opportunity can address these concerns to some extent, enabling the convention organizer to exert some influence over the process and ensure transparency. Convention organizers in general, or the overarching convention association body in particular, can reduce their level of risk through the establishment of a comprehensive information collection strategy to identify the capabilities and characteristics of the ideal PCO (Dahlstrom and Ingram, 2003). In particular, the contract needs to disclose the relationship a PCO may have with a venue and/or state clearly the commission PCO receives from hotels or other service contractors. The PCO sector itself may also wish to establish stronger professionalism credentials through the development of accreditation programs that measure objectively their capabilities, experience, and reputation. Industry bodies or government agencies could license members and publish a database. South Korea has a national certificate exam called the ‘‘Convention Organizer Certificate.’’ However, it is not well known within or outside the industry, making its reliability and practicality suspect. The relationship between organizer and PCO should ultimately be trust-based (LaBahn and Kohli, 1997). The study suggests that moral hazard indirectly affects trust. Therefore, the merits of monitoring become more intensified as moral hazard grows bigger or as costs increase. As a part of monitoring effort, Provan et al. (1989) suggested multiple network cooperation relationship for reducing opportunism of the agent. This notion derives from the fact that convention organizer has information asymmetry regarding the performance of PCO therefore is hard to directly

561

monitor PCO who has more expertise in the field. This approach is similar to using a third party consultant with special knowledge. However, using third party consultant causes cost problems and makes fair and precise standard for monitoring ambiguous. This study identified the complex nature of the relationship between a PCO and a conference organizer. The study of conference organizers’ perspective also identified substantive concerns the organizer holds about the PCO sector. In doing so, a number of actions were identified. As with any study, this study has some limitations that provide opportunities for future research. First, and foremost, the study was conducted within a Korean context. As such, applicability in other cultural contexts cannot be inferred. However, it would be worthwhile to replicate this study elsewhere to determine if the findings are generalizable. The study also focused on relationship from the principal’s perspective. It would be interesting to replicate it from the agent’s perspective to determine if similar issues arise. The focus on agency theory by necessity precluded consideration of other factors. Trust building has been conceptualized as an ultimate positive performance, and hierarchical control mechanisms such as screening, self-selection and monitoring, are observed as a governance mechanism to realize trust. Agency theory focuses on control issues between a principal and an agency. However, some researchers view those two concepts of control and trust as governance mechanisms for a successful relationship (Dekker, 2004; Emsley and Kidon, 2007; Mollering, 2005; Tomkins, 2001; Vosselman and van des Meer-Kooistra, 2009). References Anderson, J.C., Narus, J.A., 1990. A model of distributor firm and manufacturer firm working partnerships. Journal of Marketing 54, 42–58. Arrow, K.J., 1985. The economics of agency. In: Principals and Agents: The Structure of Business, Harvard Business School Press, Boston, pp. 37–51. Aulakh, P.S., Kotabe, M., Sahay, A., 1996. Trust and performance in cross-border marketing partnerships: a behavioral approach. Journal of International Business Studies 27 (5), 1005–1032. Anderson, E., Oliver, R., 1987. Perspective on behavior-based versus outcome-based sales force control system. Journal of Marketing 51 (October), 76–88. Baker, W.E., Faulkner, R.R., 1991. Strategies for managing suppliers of professional services. California Management Review 33–45. Balkin, D.B., Gomez-Mejia, L.R., 1990. Matching compensation and organizational strategies. Strategic Management Journal 11 (2), 153–169. Baloglu, S., Love, C., 2003. Association meeting planners’ perceived performance of Las Vegas: an importance-performance analysis. Journal of Convention & Exhibition Management 5 (1), 13–27. Baloglu, S., Love, C., 2005. Association meeting planners’ perceptions and intentions for five major US convention cities: the structured and unstructured images. Tourism Management 26, 743–752. Bergen, M., Dutta, S., Walker, O.C., 1992. Agency relationships in marketing: a review of the implications and applications of agency and related theories. Journal of Marketing 56, 1–24 July. Bohren, O., 1998. The agent’s ethics in the principle–agent model. Journal of Business Ethics 17 (7), 745–755. Bollen, K.A., 1989. Structural Equations with Latent Variables. Wiley, New York. Campbell, A., Shaw, M., 2000. Measuring meeting planner satisfaction with hotel employee interactions: a pilot study. Journal of Convention and Exhibition Management 2 (2/3), 59–70. Chon, I.S., 1995. Factors of influence and opportunism on agent’s devotion in principal–agent relationship. Managerial Study 19, 331–346. Clark, D., McCleary, K.W., 1995. Influencing association’s site-selection process. Cornell Hotel & Restaurant Administration Quarterly 36 (2), 61–68. Clark, J.D., Price, C.H., Murrmann, S.K., 1996. Buying centers: who chooses convention sites? Cornell Hotel and Restaurant Administration Quarterly 37 (4), 72–76. Convention Organizer Survey, 2006. Korean Convention Event Association. Crosby, L.A., Evans, K.R., Cowles, D., 1990. Relationship quality in services selling: an interpersonal influence perspective. Journal of Marketing 54, 68–81. Crouch, G.I., Ritchie, J.R.B., 1998. Convention site selection research. Journal of Convention & Exhibition Management 1 (1), 49–69. Dahlstrom, R., Ingram, R., 2003. Social networks and the adverse selection problem in agency relationships. Journal of Business Research 56, 767–775. Dekker, H.C., 2004. Control of inter-organizational relationships: evidence on appropriation concerns and coordination requirements. Accounting, Organizations and Society 29, 27–49. Demski, J.S., Feltham, G.A., 1978. Economic incentives in budgetary control systems. The Accounting Review 53, 336–359.

562

L. Hye-Rin et al. / International Journal of Hospitality Management 28 (2009) 556–562

Donaldson, L., 1990. The ethereal hand: organizational economics and management theory. Academy of Management Review 15 (3), 369–381. Edelstein, L.G., Benini, G., 1994. Meetings market report 1994. Meetings and Convention 29, 60–82. Eisenhardt, K.M., 1985. Control: organizational and economic approaches. Management Science 31 (2), 134–149. Eisenhardt, K.M., 1988. Agency- and institutional-theory explanations: the case of retail sales compensation. Academy of Management Journal 31 (3), 488–511. Eisenhardt, K.M., 1989. Agency theory: an assessment and review. Academy of Management Review 14, 57–74 Jan. Emsley, D., Kidon, F., 2007. The relationship between trust and control in international joint ventures: evidence from the airline industry. Contemporary Accounting Research 24 (3), 829–858. Fama, E.F., 1980. Agency problems and the theory of the firm. Journal of Political Economy 88 (2), 288–307. Fama, E.F., Jensen, M.C., 1983. Agency problems and residual claims. The Journal of Law and Economics 26, 327–349. Fong, E.A., Tosi, H.L., 2007. Effort, performance, and conscientiousness: an agency theory perspective. Journal of Management 33 (2), 161–179. Fortin, P.A., Ritchie, B., 1977. An empirical study of association decision process in convention site selection. Journal of Travel Research 15 (4), 13–20. Gallouj, C., 1997. Asymmetry of information and the service relationship: selection and evaluation of the service provider. International Journal of Service Industry Management 8 (1), 42–64. Guilding, C., Warnken, J., Ardill, A., Fredline, L., 2005. An agency theory perspective on the owner/manager relationship in tourism-based condominium. Tourism Management 26, 409–420. Han, S.L., Wilson, D.T., Dant, S.P., 1993. Buyer–supplier relationships today. Industrial Marketing Management 22, 331–338. Jensen, M.C., Meckling, W.H., 1976. Theory of the firm: managerial behavior, agency costs, & ownership structure. Journal of Financial Economics 3, 305–360. Jensen, M.C., 2000. The Theory of the Firm: Governance, Residual Claims and Organizational Forms. Harvard University Press, Cambridge, MA. Johnson, N.B., Droege, S., 2004. Reflections on the generation of agency theory: crosscultural considerations. Human Resource Management Review 14, 325–335. Jun, J., McCleary, K.W., 1999. Classifying US association meeting planners based on international destination selection criteria: a case study of South Korea. Hospitality Management 18, 183–199. Kim, B.J., Prescott, J.E., Kim, S.M., 2005. Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective. Journal of International Management 11, 43–66. Koh, S.D., 2002. A study on the impact of collaboration and conflicts among the partners of convention events for the performance improvement. Journal of Foodservice Management 5 (2), 3–17. Kunz, A.H., Pfaff, D., 2002. Agency theory, performance evaluation, and the hypothetical construct of intrinsic motivation. Accounting, Organizations and Society 27, 275–296. LaBahn, D.W., Kohli, L.C., 1997. Maintaining client commitment in advertising agency–client relationships. Industrial Marketing Management 26, 497–508. Lal, R., Staelin, R., 1986. Sales force compensation plans in environments with asymmetric information. Marketing Science 5, 179–198. Logan, M.S., 2000. Using agency theory to design successful outsourcing relationships. International Journal of Logistics Management 11 (2), 21–32. Macdonald, G.M., 1984. New directions in the economic theory of agency. Canadian Journal of Economics 17 (3), 415–440. Mason, D.S., Slack, T., 2003. Understanding principal–agent relationships: evidence from professional hockey. Journal of Sport Management 17, 37–61. Mishra, D.P., Heide, J.B., Cort, S.G., 1998. Information asymmetry & level of agency relationships. Journal of Marketing Research 35 (August). Mitchell, V.W., 1994. Problems & risks in the purchasing of consultancy services. The Service Industries Journal 14 (3), 315–339. Mitnick, B.M., 1975. The theory of agency. Public Choice 24 (1), 27–42. Montgomery R. J., Strick, S. K., 1995. Meetings, Conventions & Expositions, Van Nostrand Reinhold. Mollering, G., 2005. The trust/control duality: an integrative perspective on positive expectations of others. International Sociology 20, 283–305.

Moon, J., Tikoo, S., 2002. Buying decision approaches of organizational buyers and users. Journal of Business Research 55, 293–299. Morgan, R.M., Hunt, S.D., 1994. The commitment–trust theory of relationship marketing. Journal of Marketing 58 (July), 20–38. Muller, R., Turner, J.R., 2005. The impact of principal–agent relationship and contract type on communication between project owner and manager. International Journal or Project Management 23, 398–403. O’Farrell, P., Moffat, L., 1991. An interaction model of business service production & consumption. British Journal of Management 2, 205–221. Oppermann, M., 1996. Convention destination images: analysis of association meeting planners’ perceptions. Tourism Management 17 (3), 175–182. Oppermann, M., Chon, K.S., 1997. Convention participation decision-making process. Annals of Tourism Research 24 (1), 178–191. Ouchi, W.G., 1978. The transmission of control through organizational hierarchy. Academy of Management Journal 21, 248–263. Ouchi, W.G., 1979. A conceptual framework for the design of organizational control mechanisms. Management Science 25 (9), 833–848. Pratt, J.W., Zeckhauser, R.J., 1987. Principals and Agents: The Structure of Business. Harvard Business School Press: Boston. MA. Provan, Keith, G., Steven, J., Skinner, 1989. Interorganizational dependence & control as predictors of opportunism in dealer–seller relations. Academy of Management Journal 32 (March). Qu, H., Li, L., Chu, G.K.T., 2000. The comparative analysis of Hong Kong as an international conference destination in Southeast Asia. Tourism Management 21, 643–648. Ross, S.A., 1973. The economic theory of agency: the principal’s problem. American Economic Association 63 (2), 134–139. Saam, N.J., 2007. Asymmetry in information versus asymmetry in power: Implicit assumptions of agency theory? The Journal of Socio-Economics 36, 825–840. Sharma, A., 1997. Professional as agent: knowledge asymmetry in agency exchange. Academy of Management Review 22 (3), 758–798. Show, M., Lewis, R.C., Khorey, A., 1991. Measuring meeting planner satisfaction with hotel convention services: a multi-variate approach. International Journal of Hospitality Management 10 (2), 137–146. Shurr, P.H., Ozanne, J.L., 1985. Influences on exchange processes: buyers’ preconceptions of a seller’s trustworthiness & bargaining toughness. Journal of Consumer Research 11 (March), 939–959. Spence, M., 1973. Job marketing signalling. Quarterly Journal of Economics 87 (3), 355–374. Spence, M., 1976. Informational aspects of market structure: an introduction. Quarterly Journal of Economics 90 (4), 591–597. Tanner, J.F., 1999. Organizational buying theories: a bridge to relationships theory. Industrial Marketing Management 28, 245–255. Tomkins, C., 2001. Interdependencies, trust and information in relationships, alliances and networks. Accounting, Organizations and Society 26, 161–191. Tosi, H.L., Werner, S., Katz, J.P., Gomez-Mejia, L.R., 2000. How much does performance matter? A meta-analysis of CEO pay studies. Journal of Management 26, 301–339. Turner, J.R., Muller, R., 2004. Communication and co-operation on projects between the project owner as principal and the project manager as agent. European Management Journal 22 (3), 327–336. Vosselman, E., van des Meer-Kooistra, J., 2009. Accounting for control and trust building in interfirm transactional relationships. Accounting, Organizations and Society 34, 267–283. Waller, D.S., 2004. Developing an account-management lifecycle for advertising agency–client relationships. Marketing Intelligence & Planning 22 (1), 95–112. Weber, K., 2001a. Association meeting planners’ loyalty to hotel chains. International Journal of Hospitality Management 20 (3), 259–275. Weber, K., 2001b. Meeting planners’ use & evaluation of convention & visitor bureau. Tourism Management 22 (6), 599–606. Wright, P., Mukherji, A., Kroll, M.J., 2001. A reexamination of agency theory assumptions: extensions and extrapolations. The Journal of Socio-Economics 30, 413–429. Zhao, H., 2005. Incentive-based compensation to advertising agencies: a principal– agent approach. International Journal of Research in Marketing 22, 255–275.