Income smoothing by Dutch hospitals

Research indicates that hospitals manage their earnings. However, these findings might be influenced by methodological issues. In this study, I exploit specific features of Dutch hospitals to study income smoothing while limiting these methodological issues. The managers of Dutch hospitals have the opportunity not only to postpone revenues to future periods but also to choose the moment of recognition of the postponed revenue. These postponements and recognitions can be positive as well as negative and have to be disclosed in hospitals’ financial statements. I show that the patterns found with respect to postponing revenue and the recognition of postponed revenue are consistent with the expectation that hospitals attempt to smooth their income.