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

GERARD WEDIG, FRANK A. SLOAN, MAHMUD HASSAN, MICHAEL A. MORRISEY

Research output: Contribution to journalArticlepeer-review

64 Scopus citations

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. 1988 The American Finance Association

Original languageEnglish (US)
Pages (from-to)21-40
Number of pages20
JournalJournal of Finance
Volume43
Issue number1
DOIs
StatePublished - Mar 1988
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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