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

 
HYPOTHESIS 
Given the findings of Sloan (1996), we propose the following research hypothesis: 
H1: There is a negative relationship between firms that are manipulating earnings and changes in stock price for 
U.S. restaurant firms. 
 
DATA AND METHODOLOGY 
In
 
an attempt to assess potential earnings manipulation in the lodging industry, we collect the sample of 
589 annual restaurant firm observations for the years 1980 through 2005. The data is from the COMPUSTAT 
database except for the stock prices which are from the CRSP database. We created a matrix of variables based 
upon Beneish (1999a) that is shown in the appendix. We utilize the following regression model for our analysis:

CMARCAPTA = 

α
+ 
β
1
CFTA + + 
β
2
BI
 +
β
3
Marcapta + 
ε
i

CMARCAPTA is the ration of change in market capitalization over the previous year to total assets. We 

believe that this is the appropriate use of dependent variable as all of the independent variables are ratios themselves.
CFTA is control variable that is the ratio of free cash flow to total assets; Marcapta is the level of market 
capitalization scaled by total assets and is included to control for size. BI