Page 224 - 32.3

Earnings Management Behavior under the Global Budget Payment and Reduction of Medical Expenses
System: The Effects of Different Types of Hospitals

Earnings Management Behavior under the Global Budget
Payment and Reduction of Medical Expenses System: The Effects
of Different Types of Hospitals

Chan-Jane Lin, Department of Accounting, National Taiwan University
Hsiao-Yu Chen, Department of Accounting, National Taiwan University
Hsiao-Lun Lin, Department of Accountancy, National Taipei University

1. Purpose/Objective

The study examines earnings management behavior under the Global Budget

Payment and Reduction of Medical Expenses System across various types of hospitals
in Taiwan. Since 2013, the quality of financial reports in Taiwan’s hospital industry
has received increased regulatory and public attention. Hospitals in Taiwan could have
one of the following organizational forms: public hospitals, private hospitals, medical
juridical persons, and hospitals affiliated with other nonprofit organizations; Medical

juridical persons can be further divided into medical care foundations and medical care
corporations. This study focuses on comparing the earnings management behaviors
between private hospitals, medical care foundations, and medical care corporations.

Specifically, medical care foundations are nonprofit hospitals, whereas medical care
corporations and private medical care institutions are for-profit hospitals. In this study, we
posit that under different tax regulations, various hospital types exhibit distinct earnings
management behaviors and that institutional pressure to provide social benefits prompts
medical care foundations to avoid reporting high earnings.

2. Design/Methodology/Approach

Prior studies reveal that the organizational form of hospitals affects hospital earnings

management (Cannon, Lamboy-Ruiz, and Watanabe, 2022; Elshafie and Alam, 2011; Wen,
Huang, Shen, and Zhang, 2019). According to the tax regulations in Taiwan, the income of
a private hospital must be combined with the personal income of the physicians in charge
of the hospital. This policy incentivizes private hospitals to manage earnings downward in

order to be subject to relatively low personal income taxes. On the other hand, to enhance

214