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Regulatory incentives and financial reporting quality in public healthcare organisations

Research output: Contribution to journalArticle

English National Health Service Foundation Trusts are subject to a regulatory regime in which the level of monitoring and intervention is determined by performance against two key performance metrics: a ‘financial risk rating’, based on a number of performance metrics, such as the reported surplus margin and return on assets, and a ‘prudential borrowing limit’. In this paper, we investigate the variation in financial reporting quality, proxied by discretionary accruals, with the incentives introduced by this regime. We find: first, that discretionary accruals are managed to report small surpluses; second, that, consistent with the avoidance of regulatory intervention in both the short and medium term, discretionary accruals are more positive when pre-managed performance is below intervention triggering thresholds and more negative when well above threshold; third, that, despite a move away from financial breakeven as the primary performance objective, there remains an aversion to small loss reporting. We further find that the level of discretionary accruals is driven by two metrics of strategic significance: the surplus margin (a measure of retained earnings) and the prudential borrowing limit (a measure of borrowing capacity).
Original languageEnglish
JournalAccounting and Business Research
Early online date5 Jul 2017
DOIs
Publication statusEarly online - 5 Jul 2017

Documents

  • Post-Print version

    Rights statement: This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 05/07/2017, available online: http://www.tandfonline.com/10.1080/00014788.2017.1343116.

    Accepted author manuscript (Post-print), 807 KB, PDF document

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