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Investment Decisions of Nonprofit Firms: Evidence from Hospitals
Author(s) -
ADELINO MANUEL,
LEWELLEN KATHARINA,
SUNDARAM ANANT
Publication year - 2015
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/jofi.12234
Subject(s) - capital expenditure , cash flow , liberian dollar , business , investment (military) , monetary economics , finance , cash and cash equivalents , shareholder , cash on cash return , operating cash flow , economics , corporate governance , politics , political science , law
This paper examines investment choices of nonprofit hospitals. It tests how shocks to cash flows caused by the performance of the hospitals’ financial assets affect hospital expenditures. Capital expenditures increase, on average, by 10 to 28 cents for every dollar received from financial assets. The sensitivity is similar to that found earlier for shareholder‐owned corporations. Executive compensation, other salaries, and perks do not respond significantly to cash flow shocks. Hospitals with an apparent tendency to overspend on medical procedures do not exhibit higher investment‐cash flow sensitivities. The sensitivities are higher for hospitals that appear financially constrained.