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Capital Structure, Ownership, and Capital Payment Policy: The Case of Hospitals
Author(s) -
WEDIG GERARD,
SLOAN FRANK A.,
HASSAN MAHMUD,
MORRISEY MICHAEL A.
Publication year - 1988
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1988.tb02586.x
Subject(s) - capital structure , bankruptcy , business , debt , cost of capital , payment , leverage (statistics) , profit maximization , actuarial science , finance , profit (economics) , economics , monetary economics , microeconomics , machine learning , computer science
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.