Does leverage impair earnings quality in the hospitality industry? ::international evidence

We investigate the determinants of leverage and the impact of leverage on earnings quality using a large sample of public firms incorporated in 24 countries, from five hospitality sub-industries (bars and restaurants, gambling, hotels, recreational services, and travel and tourism), over the 2000-2016 period. First, we show that firm-specific characteristics (size, tangibility, and growth opportunities) as well as the institutional context are associated with leverage. Second, we find that leverage is positively related to abnormal accruals, our proxy for earnings quality. We thus confirm the detrimental effect leverage has on the reliability of accounting information. Our results are robust to using alternative earnings management measures, to excluding some countries, and to splitting leverage between its short- and long-term components. Overall, our findings contribute to the empirical literature on the determinants and the consequences of leverage in the global hospitality industry