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 provider 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 booktax reporting alignment, given the existing empirical evidence linking earnings management to corporate tax avoidance in this very sector.