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NTU Management Review Vol. 32 No. 3 Dec. 2022

the governance of hospitals, Medical Care Act requires medical juridical persons establish
a board of directors and submit the annual financial reports approved and recognized by
the board of directors to the Ministry of Health and Welfare (MHW). Moreover, to gain
public trust in hospital financial information, MHW formed a special committee in 2002

to review the audited financial reports of medical juridical persons. Clearly, the hospital
governance mechanism and monitoring of medical juridical persons are much stricter than
those of private hospitals. Thus, we propose the following hypothesis :

H1: Compared with medical juridical persons, private hospitals are more likely to use
discretionary accruals to manage earnings downward when pre-managed earnings are high.

Secondly, unlike aforementioned private medical care institutions and medical care
corporations, medical care foundations provide nonprofit care, and their assets belong to

the society; thus, the usage of their assets should be monitored by the public. In Taiwan,
the special committee of the MHW that reviews the audited financial reports of medical
juridical persons only makes public the review reports of medical care foundations.

Under this situation, as nonprofit hospitals, medical care foundations have an incentive
to mitigate excessive monitoring due to high earnings. Besides, past studies indicate
that companies reduce reported earnings in an attempt to minimize exposure to potential
regulatory costs (Han and Wang, 1998; Patten and Trompeter, 2003). Thus, we propose the
following hypothesis :

H2: Compared with medical care corporations, medical care foundations are more
likely to use discretionary accruals to manage earnings downward when pre-managed
earnings are high.

The sample period in this study ranges from 2013 to 2018 because hospitals receiving
payments from Taiwan’s National Health Insurance (NHI) above a specific threshold have
only been obligated to publicly disclose their audited financial statements since 2013.
The sample consists of 438 hospital-years. Owing to the lack of a relevant database, all

audited financial reports of hospitals are hand-collected from the website of the NHI
Administration, and hospital-level information is hand-collected from the website of the
MHW.

With reference to related studies (Leone and Van Horn, 2005; Vansant, 2016), we estimate

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