Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

 
2007 Annual International CHRIE Conference & Exposition 
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(Jang 2000), and slot machines in the gaming hotels generate around 74% of the total gaming revenue
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. Moreover, 
Garret (2003) states that the Gaming industry generated more than 40 billion dollars in 2001. Given the fact that the 
Gaming industry generates over 60% of its revenues in cash or cash equivalent from gaming operations, an 
important research question arises as to whether the Gaming industry is in a position to actively manage earnings 
using accruals since accruals are relatively a smaller portion of its earnings. Hence, if they are in the position to 
manage earnings, how do outsiders detect earnings management in an industry where most of its revenues are in the 
form of cash or cash equivalent?
As Guay et al. (1996) argue that managers use discretion over accruals to manage earnings returns only in 
bad news periods, accordingly a recession (i.e., bad news periods) generated from a specific industry affects general 
profit level of the industry. As an example, a lodging expansion boom occurred in the 1980s when the federal 
government deregulated the Savings and Loans industry and allowed it to participate in retail banking operations.
During that period, the lodging industry enjoyed a remarkable growth as many investors were able to finance their 
hotel expansion projects through Savings and Loans. The rapid expansion in the lodging facilities without a 
commensurate increase in the demand resulted in a recession in the lodging industry and led to the downfall of the 
Savings and Loans institutions. Within the hospitality industry, gaming industry is considered most susceptible to 
economic conditions as gaming hotels offer gaming activities, top name entertainments, specialty restaurants and 
more (Jang 2000), which are considered non-necessary items and that people are less willing to spend money on 
such discretionary activities during recession. 
Thus, this paper will focus on observing earnings management effects based on economic conditions and 
attempt to identify a better measurement tool to detect earnings management when an industry has less accrual bases 
from revenue sources. In order to observe distinct earnings management pattern in the gaming industry, the study 
will focus on the mean differences in discretionary accruals with respect to economic condition (i.e., recession), as 
evidence of earnings management. The remainder of the paper is as follows. In section 2, a discussion of how the 
financial literature has been investigated in different ways of measuring earnings management is presented. In 
section 3, the research design addressing research questions is discussed. Section 4 contains the research results 
followed by conclusions in section 5.