Earnings Management in Public Healthcare Organisations : The Case of the English NHS Hospitals

We explore whether NHS hospitals managed their earnings upward before applying for Foundation Trust (FT) status, a scheme that allowed them greater financial freedom and management autonomy, in order to present an overly positive picture and increase their chances for a successful application. We show that NHS FTs adjusted discretionary accruals upward for up to two years before applying for FT status. This practice was negatively associated with their future financial performance