Strategic Reporting by Nonprofit Hospitals: An Examination of Bad Debt and Charity Care

55 Pages Posted: 11 Sep 2020

See all articles by Amanda Beck

Amanda Beck

Georgia State University

Collin Gilstrap

University of Toledo

Jordan Rippy

Johns Hopkins University - Carey Business School

Brian Vansant

Auburn University - Raymond J. Harbert College of Business - School of Accountancy

Date Written: July 31, 2020

Abstract

Given the tax advantages afforded to nonprofit hospitals, including the ability to issue tax-exempt debt, hospital managers encounter institutional pressure to provide community benefits. When nonprofits issue debt, they also face economic pressure to meet creditors’ financial performance expectations. We document a reporting strategy that allows nonprofit hospitals to reduce the cost of bond debt while simultaneously alleviating regulators’ and community members’ concerns about inadequate provision of charity care. Using data from public bond issues for California nonprofit hospitals, we find that hospital managers shift costs from bad debt expense to charity care in periods prior to a public bond issuance and that reporting lower-than-expected bad debt expense is associated with a lower cost of debt. Our results inform those relying on accounting measurements to infer nonprofit hospitals’ social good provisions and financial health.

Keywords: Nonprofit hospital; Earnings Management; Charity Care; Tax Exempt Debt; Municipal Bond Market; Cost of Debt

Suggested Citation

Beck, Amanda and Gilstrap, Collin and Rippy, Jordan and Vansant, Brian, Strategic Reporting by Nonprofit Hospitals: An Examination of Bad Debt and Charity Care (July 31, 2020). Available at SSRN: https://ssrn.com/abstract=3664923 or http://dx.doi.org/10.2139/ssrn.3664923

Amanda Beck (Contact Author)

Georgia State University ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States

Collin Gilstrap

University of Toledo ( email )

Mail Stop 119, HH 3000
Toledo, OH 43606
United States

Jordan Rippy

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Brian Vansant

Auburn University - Raymond J. Harbert College of Business - School of Accountancy ( email )

415 West Magnolia Avenue
301 Lowder Hall
Auburn, AL 36849
United States
(333) 844-6218 (Phone)

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