Earnings Management, Benchmarks, and Market Valuation — A Perspective from the Hospitality Industry

Abstract

Hospitality industry (hotels and restaurants) has developed into an important sector in the world economy. We hypothesize and test that hospitality managers behave differently in managing reported earnings to meet/marginally exceed earnings benchmarks. We find that 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/ marginally exceed earnings benchmarks. The market rewards them with a significant premium. The results of this study have important implications for hospitality managers, practitioners, and regulators.