Past research has documented a substitution effect between real earnings management (RM) and accrual-based earnings management (AM), depending on relative costs. This study contributes to this research by examining whether levels of (and changes in) financial leverage have an impact on this empirically documented trade-off. We hypothesise that in the presence of high leverage, firms that engage in earnings manipulation tactics will exhibit a preference for RM due to a lower possibilityand subsequent costs-of getting caught. We show that leverage levels and increases positively and significantly affect upward RM, with no significant effect on income-increasing AM, while our findings point towards a complementarity effect between unexpected levels of RM and AM for firms with very high leverage levels and changes. This is interpreted as an indication that high leverage could attract heavy outsider scrutiny, making it necessary for firms to use both forms of earnings management in order to achieve earnings targets. Furthermore, we document that equity investors exhibit a significantly stronger penalising reaction to AM vs. RM, indicating that leverage-induced RM is not as easily detectable by market participants as debt-induced AM, despite the fact that the former could imply deviation from optimal business practices.

Purpose The purpose of this study is to quantify the impact of online customer reputation on financial profitability. Design/methodology/approach Online reputation is captured by extracting the most recurring textual themes associated with customer satisfaction and dissatisfaction, expressed within positive vs negative online guest reviews on Booking.com. Latent semantic analysis is used for textual analysis. Proxies of overall financial performance are manually constructed for the sample hotels, using financial data from the Financial Analysis Made Easy (FAME) database. Ordinary least squares is used to gauge the effect of online customer reputation on financial profitability. Findings Empirical findings indicate that recurring textual themes from positive online reviews (in contrast to negative reviews) exhibit a higher degree of homogeneity and consensus. The themes repeated in positive, but not in negative reviews, are found to significantly associate with hotel financial performance. Results contribute to the discussion about the measurable effect of online reputation on financial performance. Originality/value Contemporary quantitative methods are used to extract online reputation for a sample of UK hotels and associate this reputation with bottom-line financial profitability. The relationship between online reputation, as manifested within hotel guest reviews, and the financial performance of hotels is examined. Financial profitability is the result of revenues, reduced by the costs incurred in order to be able to offer a given level of service. Previous studies have mainly focused on basic measures of performance, i.e. revenue generation, rather than bottom-line profitability. By combining online guest reviews from travel websites (Booking.com) with financial measures of enterprise performance (FAME), this study makes a meaningful contribution to the strategic management of hotel businesses.

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