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Ownership type and earnings management in U.S. hospitals

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  • Cannon, James N.
  • Lamboy-Ruiz, Melvin A.
  • Watanabe, Olena V.

Abstract

We examine variation in accrual-based and real earnings management in U.S. hospitals by ownership type, using a stable comprehensive sample of hospitals from 2011 through 2016. We expect managers' reporting incentives to differ between ownership type (for-profit versus non-profit), resulting in differing uses of accrual and real earnings manipulations. First, we document that non-profit hospitals exhibit lower levels of both income-increasing and income-decreasing earnings manipulations than for-profit hospitals do. Second, we find that compared to non-profit hospitals, for-profit hospital managers use discretionary accruals (in particular) to create larger reserves when pre-managed earnings are high and to increase reported earnings more when pre-managed earnings are low. Together, these findings suggest that, relative to non-profit hospital managers, for-profit hospital managers have incentives to report higher and more consistent earnings.

Suggested Citation

  • Cannon, James N. & Lamboy-Ruiz, Melvin A. & Watanabe, Olena V., 2022. "Ownership type and earnings management in U.S. hospitals," Advances in accounting, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:advacc:v:58:y:2022:i:c:s0882611022000311
    DOI: 10.1016/j.adiac.2022.100612
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