The relationships among governance and earnings management: An empirical study on non-profit hospitals in Taiwan

Sequel to the fact that the financial information of non-profit proprietary hospitals in Taiwan has been called into question, the Department of Health, Executive Yuan, (2006/2) has established guidelines regarding the financial reports of medical juridical person, stipulating that these reports must be audited by a certified public accountant (CPA) to show that reported earnings are representative. However, non-profit proprietary hospitals still employ numerous measures to transfer hospital profits to individuals or corporate groups, indicating that earnings figures do not necessarily reflect operational performance. Previous studies have focused on researching earnings management behavior in nonprofit hospitals in the UK and the U.S.; however, the operational system and environment of hospitals in Taiwan are significantly different from the cases studied and cannot therefore be considered equivalent. This study used non-profit proprietary hospitals in Taiwan and ordinary least square method to test our hypothesis about earnings management behavior. The empirical results show that CEO duality (CEO serving as chairman) negatively relates to earnings management. However, information transparency and social responsibility insignificantly relate to earnings management. On the other hand, discretionary accruals play an active role in earnings management.