Earnings Management in Hospitality Firms

Abstract

This study examines whether Portuguese hotel sector firms engage in earnings management (EM) practices to provide specific accounting results and test the main determinants in explaining EM. We use the SABI database to collect panel data regarding 1615 Portuguese SME hotels from 2006–2013. In order to obtain results, a graphical representation of the distribution of the net income and the estimation of the discretionary accruals were used, from which two estimation models were formulated. The results obtained provide empirical evidence that firms in the Portuguese hotel sector seem to engage in earnings management practices and that the main determinants behind them appear to be debt level, return on assets, and firm size. The adoption of earnings management practices by firms is a widespread phenomenon across various sectors and nations. Yet, despite the general awareness regarding the importance of the tourism sector for communities at a financial, social, and cultural level, the lack of empirical studies with application to the accommodation sector makes it pertinent to investigate this phenomenon.