An investigation of the motivation of hotel owners and operators to engage in earnings management
Turner, Michael J. and Guilding, Chris (2011) An investigation of the motivation of hotel owners and operators to engage in earnings management. Qualitative Research in Accounting and Management, 84: 358-381. doi:10.1108/11766091111189882
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Purpose - To empirically investigate the differential motivations of hotel owners and operators to engage in earnings management through the selective capitalisation or expensing of asset related expenditures. Design/methodology/approach - Research evidence has been collected via a mixed methods approach utilising twenty semi-structured interviews with key hotel management contract stakeholders in Australia and a questionnaire survey administered to hotel general managers in Australia and New Zealand.
Findings - A review of the literature has resulted in an original distillation of 18 distinct earnings management motivations for hotel owners and operators. Qualitative data collected suggests an additional four motivations and that the primary motivation for hotel owners and operators to engage in earnings management stems from the two parties’ desire to affect the size of the incentive management fee that is paid to hotel operators. A suggestion that operators have a greater tendency to seek to capitalise asset related expenditures, relative to owners, has been supported by both qualitative and quantitative data collected. Practical implications - The study’s findings signify that: (1) There is a continuing need for accounting standard setting bodies to further tighten capitalisation criteria, applied to asset related expenditures; (2) auditors should be aware of the earnings management motivation dynamics that play out between hotel owners and operators; (3) there is a continuing need for the preparers of the Uniform System of Accounts for the Lodging Industry to tighten criteria applying to the capitalisation of hotel asset related expenditures; (4) hotel operators should be alert to an apparent propensity of hotel owners to expense asset related expenditures; and (5) hotel owners should be alert to an apparent propensity of hotel operators to capitalise asset related expenditure. Originality/value - This study appears to be the first to: (1) have examined the manner in which an idiosyncratic aspect of hotel governance can result in competing earning management motivations between hotel owners and operators; (2) pursue a broad level of abstraction with respect to examining earnings management in the context of asset related expenditure capitalisation decision making; (3) assess the relative strength of earnings management motivations concerning the capitalisation or expensing of asset related expenditure; and (4) conduct earnings management research utilising a mixed methods research approach involving the conduct of face-to-face interviews as well as administration of a questionnaire survey.