Selective Regulator Decoupling and Organizations' Strategic Responses

Jonas  Heese; Ranjani  Krishnan; Frank  Moers

Abstract

We posit that nonprofits that provide a greater supply of unprofitable services (beneficent nonprofits) face lenient regulatory enforcement for mispricing in price-regulated markets. Consequently, beneficent nonprofits exploit such regulatory leniency and exhibit higher mispricing. Drawing on organizational legitimacy theory, we argue that both regulators and beneficent nonprofits seek to protect their legitimacy with stakeholders, including those who demand access to unprofitable services. Using data from hospitals, we examine mispricing via "upcoding," which involves misclassifying ailment severity. Archival analysis indicates less stringent regulatory enforcement of upcoding for beneficent nonprofit hospitals, defined as hospitals that provide higher charity care and medical education. After observing regulator leniency, beneficent hospitals demonstrate higher upcoding. Our results suggest that lenient enforcement assists beneficent nonprofits to obtain higher revenues in price-regulated markets.

Citation:

Heese, Jonas, Ranjani Krishnan, and Frank Moers. "Selective Regulator Decoupling and Organizations' Strategic Responses." Academy of Management Journal 59, no. 6 (December 2016). (Selected for Best Paper Proceedings of the 2015 Academy of Management Annual Meeting. Winner of the Healthcare Management Division of the Academy of Management 2015 Best Paper Award.)

More from the Author

Case | HBS Case Collection | September 2019

Accounting Fraud at Tesco Stores (A)

Jonas Heese, Suraj Srinivasan and Julia Kelley

This case describes the accounting fraud at Tesco Stores Limited’s (TSL), which was discovered by a senior accountant in TSL’s finance department. The accountant was concerned about TSL’s handling of commercial income, which, according to the accountant, overstated Tesco’s profit by an estimated £246 million. Beyond the accounting issue, the case describes Tesco’s organizational and cultural shortcoming causing this problem, how Tesco’s new CEO Dave Lewis responded to the allegations, and how the court held the Tesco accountable for its fraudulent accounting.

Citation:
Heese, Jonas, Suraj Srinivasan, and Julia Kelley. "Accounting Fraud at Tesco Stores (A)." Harvard Business School Case 120-032, September 2019. View Details

Cite View Details Educators Purchase Related
Teaching Note | HBS Case Collection | September 2019

Accounting Fraud at Tesco Stores (A), (B), (C)

Jonas Heese and Suraj Srinivasan

Citation:
Heese, Jonas, and Suraj Srinivasan. "Accounting Fraud at Tesco Stores (A), (B), (C)." Harvard Business School Teaching Note 120-035, September 2019. View Details

Cite View Details Purchase Related
Supplement | HBS Case Collection | September 2019

Accounting Fraud at Tesco Stores (B)

Jonas Heese, Suraj Srinivasan and Julia Kelley

Citation:
Heese, Jonas, Suraj Srinivasan, and Julia Kelley. "Accounting Fraud at Tesco Stores (B)." Harvard Business School Supplement 120-033, September 2019. View Details

Cite View Details Purchase Related

Faculty & Research

Selective Regulator Decoupling and Organizations' Strategic Responses

Abstract

Citation:

About the Author

More from the Author