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Does It Matter Who Your Buyer Is? The Role of Nonprofit Mission in the Market for Corporate Control of Hospitals

  • Paul Gertler
  • Jennifer Kuan

The hospital industry is one of this country's largest mixed industries, with for-profit, nonprofit, and government hospitals operating in the same local markets. But how do ownership types differ? Previous studies have compared costs among different hospitals. However, these studies have not been entirely successful because costs cannot be meaningfully compared without controlling for hard-to-measure quality of service. In this study, we look to the market for corporate control-or takeovers-for evidence of ownership-related differences. We find that nonprofit and for-profit firms pay different prices and that these differences relate to the nonprofit's mission. Specifically, nonprofits and for-profits pay the same price when buying for-profits, but nonprofits pay less when buying a "like-minded" nonprofit (so religious nonprofits pay less for other religious nonprofits, for example). The resulting dual-price equilibrium suggests that nonprofits have a different objective than do for-profits but also that nonprofits behave competitively and efficiently when interacting with for-profits. (c) 2009 by The University of Chicago. All rights reserved.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 52 (2009)
Issue (Month): 2 (05)
Pages: 295-306

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Handle: RePEc:ucp:jlawec:v:52:y:2009:i:2:p:295-306
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