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Institutional Pressures to Provide Social Benefits and the Earnings Management Behavior of Nonprofits: Evidence from the U.S. Hospital Industry

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  • Brian Vansant

Abstract

This study examines the relationship between institutional pressures to provide social benefits and the discretionary accrual behavior of nonprofit firms. I examine this issue within the context of U.S. nonprofit hospitals, an economically significant and politically rich setting where firms face considerable institutional pressure to provide an important social benefit: charity care. I argue that institutional pressures on nonprofits to provide higher levels of social benefits imply that lower profits should be reported. I develop theory and provide evidence which suggests that, due to competing private incentives to report higher profits, nonprofit managers strategically use discretionary accruals to increase accounting earnings when the social benefits their firms have provided in the current period exceed external stakeholders' normative expectations. The findings from this study inform the ongoing political debate regarding the appropriateness of tax exemptions for U.S. nonprofit hospitals and should therefore be of interest to both regulators and policymakers. In addition, this study provides timely insights for researchers regarding how institutional pressures can affect managers' reporting behaviors in other settings where similar competing reporting incentives exist between managers' private benefits and stakeholder expectations related to social benefits.L'auteur étudie la relation entre les pressions institutionnelles exercées sur l'offre de prestations sociales et le comportement des organismes sans but lucratif (OSBL) en matière d'ajustements discrétionnaires. Il s'intéresse plus particulièrement au cas des hôpitaux sans but lucratif aux États†Unis, un contexte important sur le plan économique et riche sur le plan politique dans lequel les organismes sont soumis à des pressions institutionnelles considérables quant à l'offre de prestations sociales importantes : celles des soins de santé humanitaires. Selon l'auteur, les pressions institutionnelles exercées sur les OSBL afin qu'ils offrent des niveaux supérieurs de prestations sociales laissent supposer que ces derniers devraient faire état de profits moins élevés. L'auteur élabore à cet égard une théorie étayée par des faits selon laquelle les gestionnaires d’OSBL, soumis à des incitatifs privés contradictoires qui les poussent à faire état de profits plus élevés, font une utilisation stratégique des ajustements discrétionnaires en vue d'augmenter les résultats comptables lorsque les prestations sociales que leurs organismes ont livrées au cours de l'exercice excèdent les attentes normatives des parties prenantes externes. Les constatations découlant de cette étude éclairent le débat politique permanent relatif à la légitimité des exonérations fiscales dont bénéficient les hôpitaux sans but lucratif aux États†Unis et présentent donc nécessairement un intérêt tant pour les autorités de réglementation que pour les décideurs. De plus, l’étude fournit des renseignements très utiles aux chercheurs en ce qui a trait à la façon dont les pressions institutionnelles peuvent influer sur le comportement des gestionnaires en matière de communication d'information dans d'autres contextes où existent des incitatifs contradictoires similaires entre les avantages personnels des gestionnaires et les attentes des parties prenantes quant aux prestations sociales.

Suggested Citation

  • Brian Vansant, 2016. "Institutional Pressures to Provide Social Benefits and the Earnings Management Behavior of Nonprofits: Evidence from the U.S. Hospital Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 33(4), pages 1576-1600, December.
  • Handle: RePEc:wly:coacre:v:33:y:2016:i:4:p:1576-1600
    DOI: 10.1111/1911-3846.12215
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    Cited by:

    1. Patricia H. Born & Evan M. Eastman & E. Tice Sirmans, 2023. "Managed care or carefully managed? Management of underwriting profitability by health insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(1), pages 5-31, January.
    2. Dang, Canh Thien & Owens, Trudy, 2020. "Does transparency come at the cost of charitable services? Evidence from investigating British charities," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 314-343.
    3. Anessi-Pessina, Eugenio & Steccolini, Ileana, 2024. "Do conformity and bailouts affect misreporting? The case of public health-care organisations," The British Accounting Review, Elsevier, vol. 56(3).
    4. Amanda Beck & Collin Gilstrap & Jordan Rippy & Brian Vansant, 2021. "Strategic reporting by nonprofit hospitals: an examination of bad debt and charity care," Review of Accounting Studies, Springer, vol. 26(3), pages 933-970, September.
    5. Isabel‐Maria García‐Sánchez & Nazim Hussain & Sana Akbar Khan & Jennifer Martínez‐Ferrero, 2020. "Managerial entrenchment, corporate social responsibility, and earnings management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(4), pages 1818-1833, July.
    6. Bichescu, Bogdan C. & Bradley, Randy V. & Smith, Antoinette L. & Wei, Wu, 2018. "Benefits and implications of competing on process excellence: Evidence from California hospitals," International Journal of Production Economics, Elsevier, vol. 202(C), pages 59-68.
    7. Dominic Cyr & Suzanne Landry & Anne Fortin, 2022. "Management of Charitable Program Expense Ratios in the Charity Sector," Australian Accounting Review, CPA Australia, vol. 32(1), pages 106-123, March.
    8. Amanda W. Beck, 2018. "Opportunistic financial reporting around municipal bond issues," Review of Accounting Studies, Springer, vol. 23(3), pages 785-826, September.
    9. Dominic Cyr & Suzanne Landry & Anne Fortin, 2023. "Financial Disclosure Management by Charitable Organisations: A Conceptual and Operational Framework," Australian Accounting Review, CPA Australia, vol. 33(1), pages 46-65, March.

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