Do Differences in Tax Status Impact Financial Statement Comparability? Empirical Evidence from the Hospital Industry
Keywords:
financial statement comparability, hospitals, not-for-profit tax status, mixed competitionAbstract
Financial statement comparability is a characteristic of financial statements that allows analysts to make reliable comparisons of financial information across firms. Much of the economics and health services literature on oligopolistic behaviors in the hospital industry simply assumes, without verification, that financial statement comparability exists. If hospitals with different tax statuses are not actually comparable, any significant differences found by hospital type may be spurious. In this study, financial statement comparability is characterized using Friesner and Brajcich’s (2022, 2023) information entropy theory methodology. This methodology is applied to income statement and balance sheet information drawn from a sample of California general hospitals in 2022. Quantile regression is applied to the financial statement comparability measures to assess whether hospitals with different tax statuses exhibit statistically significantly different degrees of financial statement comparability. When evaluating the 75th and 85th percentiles of the sample, government-operated, not-for-profit hospitals exhibited higher financial comparability measures than other types of firms. This indicates that these hospitals are more likely to be “outliers” compared to their peers and exhibit fundamentally different and less comparable information in their financial statements.
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Copyright (c) 2026 Dan Friesner, Andrew Brajcich, Matthew McPherson
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