Motivational factors affecting earnings management of not-for-profit hospitals in South Korea

Abstract

This study aims to investigate that not-for-profit hospitals in South Korea also conduct opportunistic earnings management as for-profit organizations do. Medical corporations except clinics owned by individual doctors are classifies as not-for-profit organizations in South Korea (Inheritance Tax and Gift Tax Act of Korea, 2012). On the considering launching of for-profit hospitals in South Korea, a lack of research exists to understand the types and motivations of earnings management in not-for-profit hospital settings. With the evidence of earnings management in for-profit organizations, this research involves examining whether leaders of not-for-profit hospitals in South Korea manage earnings and how they manage earnings. The study included the logistic regression models of performance-matched discretionary accruals to test whether not-for-hospitals manage reported earnings with a sample of 375 hospitals (1,500 hospital-year observations) from 2007 to 2010. The findings show that not-for-profit hospitals manage earnings to make a cookie jar reserve by using reserve fund and manage earnings negatively to increase donation revenue. Furthermore, this study found that public (large) hospitals engage in less earnings management than small sized hospitals to avoid reputation (political) costs. © 2014 Academic Journals Inc.