Earnings Management in Non-Profit Hospitals - Evidence from Taiwan

This paper investigates whether earnings management occurs in non-profit hospitals. Using manually collected financial data of the foundation hospitals in Taiwan over the period from 2006 to 2008, I find non-profit hospitals tend to manage earnings to a range just above zero by examining the distribution of reported income on a sample of 45 hospitals and 133 hospital-year observations. The study further analyzes the characteristics of non-profit hospitals that have reported earnings slightly higher than zero. It shows that the religionand business-group hospitals and hospitals that receive more donations intend to manage earnings to a range just above zero. In addition, I test the association between discretionary accruals (estimated in aggregate accruals model as well as specific accruals model) and “pre-managed” earnings, the evidence suggests that managers of non-profit hospitals use their managerial discretion over accounting choice to meet earnings target. These results provide evidence consistent with non-profit hospitals similar to for-profit organizations, conduct earnings management.