Business strategies and financial reporting complexity in hospitality firms

This study investigates the impact of the asset-light and fee-oriented (ALFO) strategy on the auditors’ assessment of financial reporting complexity. To do so, we adopt an integrated mixed method design. First, from semi-structured interviews with audit experts active in the hospitality industry, we identify the proposition that the ALFO strategy induces incremental financial reporting complexity leading external auditors to set higher audit fees. Then, the association between the extent of asset-lightness and audit fees is empirically tested on a sample of global hospitality companies over the 2010–2019 period. The results confirm an inverted U-shaped association. Study findings are of interest to hospitality firms’ investors, board members, and executives as they provide fresh insight into an under-investigated consequence of the ALFO strategy and reveal the conditions preserving accounting information quality in an increasingly complex environment. •This study identifies a negative consequence of the ALFO strategy by adopting mixed methods research design.•Interviews with audit experts provide insights into how the asset-light strategy causes financial reporting complexity.•Empirical tests indicate an inverted U-shaped association between the extent of asset-lightness and audit fees.•Findings suggest specific contexts in which audit complexity increases, leading to a greater risk of accounting manipulation.