The homestay sector in Malaysia has historically been fundamental to rural tourism, providing visitors with genuine cultural experiences and aiding local people. Throughout the years, the business has expanded, bolstered by governmental efforts and a rising desire for community-oriented tourism experiences. Notwithstanding its expansion, the industry encounters obstacles, including uneven income distribution, operational inefficiencies, and disparate demand levels across regions. A report from the Department of Statistics Malaysia (2024) indicates considerable income inequalities, with certain states generating up to RM5 million, while others accrued as low as RM200,000, underscoring a pronounced revenue difference. This study analyses governance practices in the Malaysian homestay business using institutional theory, emphasizing the impact of formal and informal structures, rules, and norms on the efficacy and sustainability of homestay operations. The results demonstrate the essential function of institutional frameworks in influencing stakeholder behaviour, mitigating regional inequities, and fostering sustainable tourist practices. This study aims to improve governance frameworks, adhere to institutional norms, and ensure fair and sustainable development for the homestay sector.
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