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Nonprofit classification decisions in response to threshold-based charity care incentives

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  • Lamboy-Ruiz, Melvin A.
  • Lien, Donald
  • Smith, Pamela C.

Abstract

We examine how the threat of losing income tax-exemption affects U.S. nonprofit hospitals' misclassification of the components of uncompensated care when the hospitals (i) are required to provide charity care subject to a minimum threshold in exchange for keeping the tax-exemption, (ii) are reimbursed for their bad debts, and (iii) can misrepresent their privately observed information regarding bad debts and charity care provided. Using an analytical model, we illustrate the optimal misclassification strategies of bad debt and charity care.

Suggested Citation

  • Lamboy-Ruiz, Melvin A. & Lien, Donald & Smith, Pamela C., 2021. "Nonprofit classification decisions in response to threshold-based charity care incentives," Advances in accounting, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:advacc:v:53:y:2021:i:c:s0882611021000134
    DOI: 10.1016/j.adiac.2021.100525
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    References listed on IDEAS

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    1. Gulley, O. David & Santerre, Rexford E., 1993. "The Effect of Tax Exemption on the Market Share of Nonprofit Hospitals," National Tax Journal, National Tax Association, vol. 46(4), pages 477-86, December.
    2. Kennedy, Frances A. & Burney, Laurie L. & Troyer, Jennifer L. & Caleb Stroup, J., 2010. "Do non-profit hospitals provide more charity care when faced with a mandatory minimum standard? Evidence from Texas," Journal of Accounting and Public Policy, Elsevier, vol. 29(3), pages 242-258, June.
    3. Melvin A. Lamboy-Ruiz & James N. Cannon & Olena V. Watanabe, 2019. "Does State Community Benefits Regulation Influence Charity Care and Operational Efficiency in U.S. Non-profit Hospitals?," Journal of Business Ethics, Springer, vol. 158(2), pages 441-465, August.
    4. Eldenburg, Leslie & Vines, Cynthia C., 2004. "Nonprofit classification decisions in response to a change in accounting rules," Journal of Accounting and Public Policy, Elsevier, vol. 23(1), pages 1-22.
    5. Ranjani Krishnan & Michelle H. Yetman, 2011. "Institutional Drivers of Reporting Decisions in Nonprofit Hospitals," Journal of Accounting Research, Wiley Blackwell, vol. 49(4), pages 1001-1039, September.
    6. Gulley, O. David & Santerre, Rexford E., 1993. "The Effect of Tax Exemption on the Market Share of Nonprofit Hospitals," National Tax Journal, National Tax Association;National Tax Journal, vol. 46(4), pages 477-486, December.
    7. Leone, Andrew J. & Van Horn, R. Lawrence, 2005. "How do nonprofit hospitals manage earnings?," Journal of Health Economics, Elsevier, vol. 24(4), pages 815-837, July.
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    More about this item

    Keywords

    Healthcare; Hospitals; Nonprofits; Charity care; Bad debts;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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