Rising Labor Costs, Earnings Management, and Financial Performance of Health Care Providers around the World ^☆

Abstract

Purpose

Amid increasing interest in how government regulation and market competition affect the cost and financial sustainability in health care sector, it remains unclear whether health care providers behave similarly to their counterparts in other industries. The goal of this chapter is to study the degree to which health care providers manipulate accruals in periods of financial difficulties caused, in part, by the rising costs of labor.

Methodology

We collected the financial information of health care providers in 43 countries from 1984 to 2013 and conducted a pooled cross-sectional study with country and year fixed-effects.

Findings

The empirical evidence shows that health care providers with higher wage costs are more likely to smooth their earnings in order to maintain financial sustainability.

Originality/value

The finding of this study not only informs regulators that earnings management is pervasive in health care organizations around the world, but also contributes to the studies of financial book-tax reporting alignment, given the existing empirical evidence linking earnings management to corporate tax avoidance in this very sector.

Citation

Dong, G.N. (2015), "Rising Labor Costs, Earnings Management, and Financial Performance of Health Care Providers around the World ^☆ ", International Best Practices in Health Care Management (Advances in Health Care Management, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 117-135. https://doi.org/10.1108/S1474-823120140000017006