Expense Preference Behavior by Managers in Casino Resorts

Abstract

The main goal of management in the United States is to maximize the wealth of shareholders. Managers, though, sometimes make decisions that benefit them more than the shareholders. When this occurs they are considered to be exhibiting expense preference behavior. This study evaluates expense preference behavior by managers of Nevada casinos. Using ordinary least squares regression, significant positive results show that for each 1% increase in revenue, employees increase 0.88%, salaries and wages increase 0.98%, and total payroll increases 1.01%. Also during the biggest economic downturn to hit Nevada casinos, management significantly decreased employees 14.7%, salaries and wages 4.9%, and total payroll 3.9%. Since managers are able to decrease payroll-related expenses after controlling for the change in business volumes, they are most likely operating inefficiently during good economic times. These additional expenses equate to a lower net income, which decreases owners' residual income and increases the need to borrow during growth periods.

Additional information

Funding

This research was sponsored in part by Caesars Foundation.