Earnings management practices of the lodging industry: Diverging behaviors of lodging real estate investment trusts and lodging C-corps

Jaehee Gim, Soo Cheong Jang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

In an attempt to manage earnings upward, firm managers commonly deviate from normal business activities (i.e., real earnings management) and misrepresent accruals on financial reports (i.e., accrual earnings management). The current study aimed to demonstrate that due to the financial and regulatory uniqueness of lodging real estate investment trusts (REITs), lodging REITs diverge from lodging C-corporations (C-corps) in their earnings management behavior. Specifically, drawing on signaling theory and precautionary motive theory, the current study showed that compared to lodging C-corps, lodging REITs are less likely to engage in accrual earnings management but more actively conduct real earnings management. Furthermore, the deterrent impact of cash holdings on real earnings management using unusually low discretionary expenditures was found to be weaker for lodging REITs than for lodging C-corps. The findings of the current study will enhance stakeholders’ understanding of lodging firms’ earnings management behavior by shedding light on the different business types in the lodging industry.

Original languageEnglish
JournalTourism Economics
DOIs
Publication statusPublished - 2 Aug 2023

Keywords

  • earnings management
  • funds from operations
  • lodging industry
  • lodging real estate investment trusts

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Tourism, Leisure and Hospitality Management

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