The persistence of abnormal earnings and systematic risk

Since the recent economic crisis in Korea and the opening of the Merge & Acquisition (M&A) market, the accounting information provided by hotel firms has acquired greater importance. The capital cost of hotel firms is high compared to other industries as the number of hotels listed in the securities market are very few. The purpose of this paper is to examine the relationship between the persistence of abnormal earnings and systematic risk in hotel firms.For this end, this study developed prediction models of systematic risk for hotel firms. The persistence of abnormal earnings has a systematic relation with book value of equity and earnings. In this study, persistence was measured using the first auto-correlation coefficient of abnormal earnings for two consecutive periods.The results of this study can be used to measure the persistence of growth of hotel firms and soundness of hotel management, and provide useful information for stakeholders in hotel firms. The results of this study indicate that there was a statistically significant relationship between persistence of abnormal earnings and systematic risk in hotel firms. Furthermore, the persistence of abnormal earnings was significantly related to non-accounting variables, indicating the importance of external factors for the profitability of hotel firms.