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

discretional float-point adjustment (DA_adj ) and discretional NHI deductions (DA_aud )
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from Model (1) and Model (2), respectively, as follows:
△ _ , (1)
△ _ , (1)
△ _ , (2)
△ _ , (2)
where △ ADJ is the change in the float-point adjustment for hospital i in year t, △NHI_
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Rev is the change of NHI revenue for hospital i in year t, △ AUD is the change of
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NHI deductions for hospital i in year t, DA_adj is equal to the residual from Model (1)
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multiplied by -1, and DA_aud is equal to the residual from Model (2) multiplied by -1.
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To test H1 and H2, Models (3) and (4) are expressed as follows:

_ _ _ , (3)
_ _ _ , (3)
_ _ _ , (4)
_ _ _ , (4)
where the dependent variable DA_adj is the discretional float-point adjustment, DA_
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aud is the discretional NHI deductions, and Type is the organization type of hospital i.
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To test H1, Type is an indicator variable Private . To test H2, Type represents indicator
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variables Found and Corpor . Private is an indicator variable equal to 1 if the hospital
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is a private hospital, Found is an indicator variable equal to 1 if the hospital is a medical
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care foundation, and Corpor is an indicator variable equal to 1 if the hospital is a medical
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care corporation. We include control variables in both models to control for hospital level,
hospital size, the NHI point value of the previous year, and audit firm size. In addition,
division- and year-specific fixed effects are included in both models to control for variation
across NHI divisions or over time.

3. Findings

Our results indicate that different types of hospitals did have distinct earnings management
behaviors. To test H1, the result of Model (3) reveals that Private ×ROA_adj has a
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significant negative association with DA_adj . The result of Model (4) indicates that
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Private ×ROA_aud exhibits a significant negative association with DA_aud . These
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results demonstrate that compared with medical juridical persons, private hospitals use
discretionary accruals to reduce income to a greater extent when pre-managed earnings are

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