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Do liquidity constraints affect the investment decisions of California hospitals?

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  • Kim, Jounghyeon
  • McCullough, Jeffrey S.
  • Lee, Jinhyung

Abstract

We explore how hospitals' liquidity constraints affect investment decisions for two types of hospital investments: general and health information technology capital investment. In the literature, only one dimension of the investment strategy, namely cash flow, has been examined empirically. Using the neoclassical model of investment and annual hospital financial data from California's Office of Statewide Health Planning and Development (OSHPD) from 1997 to 2007, we investigate the impacts of liquidity constraints such as cash flow and marginal profitability of capital on investment decisions across hospital ownership types. The system GMM estimation results reveal that hospitals face liquidity constraints for general capital investment, and these constraints are more pronounced in nonprofit hospitals than in for-profit or government-owned hospitals. However, they are not liquidity constrained for health IT capital investments. This represents that liquidity constraints are not the cause of the low health IT investment of California hospitals.

Suggested Citation

  • Kim, Jounghyeon & McCullough, Jeffrey S. & Lee, Jinhyung, 2022. "Do liquidity constraints affect the investment decisions of California hospitals?," Economic Modelling, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001432
    DOI: 10.1016/j.econmod.2022.105897
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    1. Sahoo, Pravakar & Bishnoi, Ashwani, 2023. "Drivers of corporate investment in India: The role of firm-specific factors and macroeconomic policy," Economic Modelling, Elsevier, vol. 125(C).

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    More about this item

    Keywords

    Hospital capital investment; Liquidity constraint; Health information technology;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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