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Hospital Investment Decisions and the Cost of Capital

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  • Wedig, Gerard J
  • Hassan, Mahmud
  • Sloan, Frank A

Abstract

This study addresses two issues conceptually and empirically. How does hospital ownership type affect hospital investment choices? How do differences in the way hospitals are paid--cost- versus charge-based reimbursement--affect hospital investment? The authors compute cost-of-capital measures for both for-profit and not-for-profit hospitals. Whether or not hospital dependence on cost-based payment stimulates investment depends on the generosity of such payment relative to the economic cost of capital. Empirically, they find that for-profit hospital exit/entry decisions are guided by the generosity of payment to a greater extent than the not-for-profits. Copyright 1989 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 62 (1989)
Issue (Month): 4 (October)
Pages: 517-37

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Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:4:p:517-37

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Pizzini, Mina J., 2006. "The relation between cost-system design, managers' evaluations of the relevance and usefulness of cost data, and financial performance: an empirical study of US hospitals," Accounting, Organizations and Society, Elsevier, vol. 31(2), pages 179-210, February.
  2. Guerrero, Isabelle & Mossé, Philippe R. & Rogers, Vaughan, 2009. "Hospital investment policy in France: Pathways to efficiency and the efficiency of the pathways," Health Policy, Elsevier, vol. 93(1), pages 35-40, November.
  3. Suhui Li & Avi Dor, 2013. "How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization," NBER Working Papers 18926, National Bureau of Economic Research, Inc.
  4. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
  5. Fred Goldman & Michael Grossman & Susan W. Nesbitt & Pamela Mobilia, 1992. "Determinants of Interest Rates on Tax-Exempt Hospital Bonds," NBER Working Papers 4139, National Bureau of Economic Research, Inc.
  6. Capps, Cory & Dranove, David & Lindrooth, Richard C., 2010. "Hospital closure and economic efficiency," Journal of Health Economics, Elsevier, vol. 29(1), pages 87-109, January.
  7. Ciliberto, Federico & Lindrooth, Richard, 2007. "Exit from the Hospital Industry," MPRA Paper 24917, University Library of Munich, Germany.
  8. Jill R. Horwitz, 2005. "Does Corporate Ownership Matter? Service Provision in the Hospital Industry," NBER Working Papers 11376, National Bureau of Economic Research, Inc.
  9. Gentry, William M., 2002. "Debt, investment and endowment accumulation: the case of not-for-profit hospitals," Journal of Health Economics, Elsevier, vol. 21(5), pages 845-872, September.
  10. Daniel Friesner & Robert Rosenman, 2002. "A Dynamic Property Rights Theory of the Firm," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 311-333.
  11. Lindrooth, Richard C. & Lo Sasso, Anthony T. & Bazzoli, Gloria J., 2003. "The effect of urban hospital closure on markets," Journal of Health Economics, Elsevier, vol. 22(5), pages 691-712, September.
  12. Ligon, James A., 1997. "The capital structure of hospitals and reimbursement policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(1), pages 59-77.

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