Zhan, Ruijia; (2023) Expenditure Management and Regulatory Financial Targets in Public Healthcare Organizations. In: Proceedings of the 45th Annual Congress of the European Accounting Association 2023. European Accounting Association (EAA) (In press).

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Abstract

This study investigates the impact of regulatory financial target on expenditure management in public sector, using healthcare organisations as our setting. We look at how non-clinical and clinical expenditures respond to the regulatory financial risk rating. In line with earlier research, we discover that non-clinical expenditure is significantly decreased when the regulatory risk rating is just below the intervention triggering threshold. When the risk rating is well above the threshold a significant increase in non-clinical abnormal expenditure is observed. We also find evidence that such increase/decrease is driven more by certain individual financial metric ratings, including I&E margin and EBITA margin. Surprisingly, we also find evidence of management in clinical expenditure when risk rating is just below the regulatory intervention triggering level, and that it is increased when risk rating is well above the intervention triggering level. Finally, we find a moderation effect for both non-clinical and clinical expenditure management when trusts faced with potential intervention. Our paper contributes to the limited research in public sector real earnings management and adds to the discussion of how public service delivery are affected by regulatory environment.

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