The Influence of Ownership and Regulatory Scrutiny on Earnings Management in U. S. Hospitals

57 Pages Posted: 4 May 2016 Last revised: 16 Aug 2016

See all articles by Melvin A. Lamboy-Ruiz

Melvin A. Lamboy-Ruiz

Iowa State University

James N. Cannon

Utah State University, School of Accountancy; Iowa State University

Olena V. Watanabe

Iowa State University - Debbie and Jerry Ivy College of Business

Date Written: July 21, 2016

Abstract

We examine accrual and real earnings manipulations in U.S. hospitals, where we expect differences in hospital ownership (nonprofit vs. for-profit) will result in varying incentives to manage earnings. First, we document that nonprofit hospitals have lower levels of income-increasing and income-decreasing earnings manipulations than for-profit hospitals. Second, when we partition nonprofit hospitals by states with community benefits laws, we find that this greater regulatory scrutiny is associated with lower income-decreasing and income-increasing earnings management. Further, under regulatory scrutiny, nonprofit hospitals provide a greater proportion of uncompensated (charity) care with respect to net revenue. By examining differences in regulatory scrutiny types (i.e. reporting only vs. provision only), we find that either requirement is associated with less severe earnings management. Overall, our findings suggest that reporting incentives associated with ownership and those influenced by increased regulatory scrutiny help to improve earnings quality.

Keywords: earnings management, regulatory scrutiny, nonprofit organizations, hospitals

JEL Classification: I18, M48, M49

Suggested Citation

Lamboy-Ruiz, Melvin and Cannon, James N. and Watanabe, Olena V., The Influence of Ownership and Regulatory Scrutiny on Earnings Management in U. S. Hospitals (July 21, 2016). AAA 2017 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2774584 or http://dx.doi.org/10.2139/ssrn.2774584

Melvin Lamboy-Ruiz

Iowa State University ( email )

College of Business
Ames, IA 50011-2063
United States
5152947161 (Phone)

James N. Cannon

Utah State University, School of Accountancy ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
801-927-7718 (Phone)

Iowa State University ( email )

Ames, IA 50011-2063
United States
801-927-7718 (Phone)

Olena V. Watanabe (Contact Author)

Iowa State University - Debbie and Jerry Ivy College of Business ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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