Earnings management in public hospitals: The case of Greek state-owned hospitals

IMPACT

This article has multiple implications for state-owned hospitals. The authors show that state-owned hospitals will try to meet the financial targets required by the supervisory authorities. When the central government expects a certain financial outlook, hospitals will manage their accounts to comply with these expectations. Oversight authorities and legislators need to be aware of this tendency and its implications for audits. The article identifies the factors that affect the manipulation of earnings so that strategies can be set to predict and avoid such behaviours.

ABSTRACT

Using agency theory, this article evaluates the extent to which Greek state-owned hospitals followed earnings management techniques to affect reported earnings and which accrual accounts are relevant to explain discretionary accruals. Covering the period from 2009–2019, the analysis reveals that the Greek state-owned hospitals try to report small surpluses. Accrual-based accounts and changes in their value between successive years provide evidence of relevance for earnings management.

KEYWORDS:

• Agency theory
• discretionary accruals
• earnings management
• public sector hospitals
• small surpluses
• state-owned hospitals