Do Rooms Managers Exhibit Expense Preference Behavior in Nevada Casinos?

Abstract

Within the hospitality industry, the largest expense is payroll, and it is often considered one of the most controllable. Expense preference theory postulates that managers may focus more on maximizing their own utility by overspending as opposed to firm profit maximization. The purpose of this study is to evaluate if hotel managers in Nevada casinos exhibit expense preference behavior by overstaffing. Results of various regression models show that occupied rooms is positively and significantly related to rooms payroll. In one model, there is a modestly significant relationship between market concentration and rooms payroll. Results also show that after accounting for other variables, there is no significant relationship between a recession and rooms payroll.

Expense Preference Behavior by Managers in Casino Resorts

“…While both went down, number of employees decreased almost three times that of salaries and wages. These results are not consistent with what Repetti and Dalbor (2014) found when evaluating just the rooms division within casino hotels. That study found that the 2007-2009 recession did not have a significant impact on payroll-related expenses, but that study only evaluated the hotel division which accounts for approximately 18% of total employees in Nevada casino resorts (Nevada State Gaming Control Board, 2013) and only evaluated the period immediately corresponding to the national recession.…”

“…This finding did support what Smirlock and Marshall (1983) found, that when firm size is taken into account market concentration is not significant. These results also support what Repetti and Dalbor (2014) found when evaluating the hotel division within casinos. These findings, though, were opposite of what many previous expense preference studies reported, although not all of these previous studies included firm size in their analysis (Arnould, 1985;Carter et al, 1997;Edwards, 1977;Hannan, 1979;Hannan & Mavinga, 1980;Williamson 1963).…”

“…With these two characteristics standard for all firms tested, Nevada casinos could be evaluated with other variables. Firm size was found to have a significant positive relationship to payrollrelated expenses, which supports previous research (Blair & Placone, 1988;Carter et al, 1997;Fields, 1988;Gropper & Oswald, 1996;Mixon & Upadhyaya, 1996;Repetti & Dalbor, 2014;Smirlock & Marshall, 1983;Williamson, 1973). As Nevada casinos increased revenue by 1%, they also spent between 0.98% and 1.01% more in payroll-related expenses.…”

“…As casino firms increased in size and produced more revenue, they had more payroll-related expenses, which supports not only prior research but also hypotheses 1a, 1b, and 1c (Blair & Placone, 1988;Carter et al, 1997;Gropper & Oswald, 1996;Mixon & Upadhyaya, 1996;Repetti & Dalbor, 2014;Smirlock & Marshall, 1983). For each 1% increase in revenue, casinos hired 0.88% more employees, spent 0.98% more in salaries and wages, and incurred 1.01% more in total payroll.…”

“…As the number of layers increases, the amount of expense preference behavior throughout the THE JOURNAL OF HOSPITALITY FINANCIAL MANAGEMENT organization will increase. When evaluating the hotel division within Nevada casinos, Repetti and Dalbor (2014) also find that firm size is a factor. This study evaluates number of occupied rooms as a variable for firm size and finds that as the number of occupied rooms increases by 1%, hotel managers employ 0.91% more employees, which causes total payroll to increase 1.05%.…”