Capital Structure, Ownership, and Capital Payment Policy: The Case of Hospitals

  • Author(s): GERARD WEDIG, FRANK A. SLOAN, MAHMUD HASSAN, MICHAEL A. MORRISEY
  • Published: Apr 30, 2012
  • Pages: 21-40
  • DOI: 10.1111/j.1540-6261.1988.tb02586.x

ABSTRACT

This study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a one‐period stochastic, value‐maximization model. Separate models are developed for for‐profit and not‐for‐profit hospitals. Hospital debt‐to‐assets ratios are analyzed empirically using a cross‐section of data from the American Hospital Association. Although the effect on capital structure of hospital reliance on cost‐based reimbursement cannot be signed theoretically, in both for‐profit and not‐for‐profit cases, a higher cost‐based share leads to higher leverage. Factors associated with high bankruptcy risk (e.g., earnings volatility) cause hospitals to take on less debt.

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