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

high. Thus, H1 is supported.
To test H2, the F-test result reveals that the coefficient of Found ×ROA_adj is lower than
it
it
the coefficient of Corpor ×ROA_adj in Model (3). Moreover, the F-test result reveals that
it
it
the coefficient of Found ×ROA_adj is lower than the coefficient of Corpor ×ROA_adj
it
it
it
it
in Model (4). These results demonstrate that compared with medical care corporations,
medical care foundations use discretionary accruals to reduce income to a greater extent
when pre-managed earnings are high. Thus, H2 is supported.

4. Research Limitations/Implications

The sample in this study is limited to hospitals receiving payments from Taiwan’s
NHI above a specific threshold that have been obligated to publicly disclose their audited

financial statements. Hence, whether the findings of this study would be consistent with
hospitals that receive fewer payments needs further studying. Secondly, the percentage of
medical care foundations that engage the services of Big Four audit firms is higher than
that of medical care corporations and private hospitals. Future studies may further explore

the effect of auditor choice on audit quality in the hospital industry.

5. Originality/Contribution

This study has two major contributions. First, we extend hospital earnings
management research by also investigating the earnings management behavior of private
hospitals and medical care corporations in Taiwan. Second, we find that hospitals use
discretionary float-point adjustment accruals and allowances for NHI deductions to

manage earnings. Moreover, the current findings have two policy implications. First, the
hospital governance mechanism of private hospitals is less strict than that of medical
juridical persons, and the earnings management behavior of private hospitals may erode
the tax base. Thus, the health regulator may consider revising the hospital governance

policy, including providing guidance for estimation of discretionary accruals, and the tax
authority may select cases for auditing on the basis of our findings. Second, the current
findings may encourage the authorities to more stringently enforce the regulations on
monitoring hospital financial reports.

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