Earnings Management in the Spanish Hotel Industry

Abstract

An analysis of more than 1,990 Spanish hotel firms, large and small, over a period of five years found evidence that operating executives are not indifferent to earnings outcomes. As found in previous studies of other industries in other countries, the distribution of earnings outcomes shows a discontinuity near zero, such that one finds abnormally large numbers of observations for the interval immediately above zero and abnormally small numbers of observations immediately below zero. While the motivation of managers to avoid small losses remains open to speculation, it is clear that managers have at least some ability to manipulate profit and earnings figures. Although possible changes in stock values is one likely motivation for earnings manipulation, only two of the firms in this study are publicly traded (albeit their presence may skew results because of size). Explanations for this anomaly other than earnings manipulation do not seem to apply (such as company size or measurement error).