Determinants of earnings management in the hotel industry: An international perspective

Abstract

ABSTRACT:This paper analyzes the determinants of the level of earnings management in a wide sample of listed firms from the hotel industry in 15 countries. The empirical study relies on the discretionary accruals, as an indication of earnings management, and examines the firm and country characteristics that are potentially associated with those discretionary accruals. The results suggest that firm characteristics, including the leverage ratio, cash flow from operations, investment opportunities and the frequency of losses, are the major determinant of earnings management in the hotel industry around the world. Our results also show that firms with five star hotels have different incentives to manipulate earnings, when compared to firms holding lower quality hotels. The hotels' star rating also seems to play a different role in explaining the level of earnings management in common-law countries, when compared to code-law countries. This paper contributes to the accounting literature by examining the determinants of earnings management of a large panel of firms from the hotel industry and by focusing on the characteristics of the firm and its institutional environment.

Earnings management of brazilian firms in the IFRS era: The role of economic and institutional factors

“…Finally, contrary to our theoretical background, the coefficient of the variable Macro Performance (-0.416, t-stat = 1.43) is not statistically significant. This result suggests that in Brazil the macroeconomic performance seems to exert no influence on the practices of earnings management by managers, contrary to previous international accounting literature which demonstrates the significant of such country-level factor (e.g., Shen and Chih, 2005;Paiva and Lourenço, 2016;El Ghoul et al, 2020).…”

“…Based on a sample of 70,955 observations for the fiscal years 1993-1999 across 48 countries, Shen and Chih (2005) find that higher macroeconomic performance decreases the level of earnings management. By taking into account 568 firm-year from the hotel industry in 15 countries between 2007 and 2013, Paiva and Lourenço (2016) also demonstrate a negative association between earnings management and macroeconomic performance. Similarly, using data from 19 countries over the 1990-2015 period, El Ghoul et al ( 2020) also find a negative association between earnings management and macroeconomic performance.…”

Earnings Management in the hospitality industry: A systematic literature review

“…This is also important in the context of the hospitality industry. As can be seen in Table 2 (category C), five of the articles focus solely on listed firms (Sousa Paiva & Lourenço, 2016;Seetah, 2017;Gim et al, 2019;Jiao & Lu, 2019;Poretti et al, 2020). In contrast, only one of the articles looks exclusively at non-listed companies (Parte-Esteban & Alberca-Oliver, 2016).…”

“…Sousa Paiva and Lourenço (2016) Examines the firm and country-level characteristics potentially associated with discretionary accruals in the hotel industry and investigates behavioural differences among hotels according to their star ratings.…”

Valuation effects of earnings management on hotel firm value

“…According to their findings, innate accruals have a significantly larger pricing effect than discretionary accruals. Most recently, Sousa Paiva and Costa Lourenço (2016) took an international perspective and analyzed the determinants of earnings management in a broad sample of listed firms from the hotel industry in 15 countries. According to the results, financial leverage, cash flow, investment opportunities, and frequency of losses were major determinants of earnings management in the hotel industry worldwide.…”