Earnings Management, Benchmarks, and Market Valuation

• In Event: Issues in Accounting I

Abstract

We hypothesize and test whether hospitality (hotels and restaurants) managers behave differently in managing reported earnings to meet/marginally exceed earnings benchmarks and how the market values their behavior. We find that restaurants dominate hotels in determining hospitality managers’ earnings management behavior. Hospitality managers do not apply as much gain on asset sales and/or discretionary accruals as managers in the other industries, but they tend to promote sales by offering deep discounts/lenient credit terms and reduce discretionary expenses to meet or marginally exceed earnings benchmarks. If hospitality managers apply these earnings management practices, the market rewards them with a significant premium. This study contributes to accounting research in the hospitality industry, and its results have practical implications for hospitality managers.

Author

• Fanghong (Jason) Jiao, Bradley University