Malpractice Laws and Incentives to Shield Assets: Evidence from Nursing Homes

50 Pages Posted: 31 Mar 2014 Last revised: 4 Nov 2016

See all articles by James A. Brickley

James A. Brickley

University of Rochester - Simon Business School

Susan F. Lu

Purdue University - Krannert School of Management

Gerard J. Wedig

University of Rochester - Simon Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2014

Abstract

Previous empirical studies of the incentive effects of medical malpractice liability have largely ignored the incentives of providers to restructure to protect assets. This study uses a large panel database to provide evidence on asset-shielding responses to the enactment of pro-plaintiff tort laws in the nursing home industry. The evidence suggests two important asset-shielding responses. First, large chains sold many homes in the affected states to smaller, more judgment-proof owners (with fewer assets, little or no insurance coverage and protective legal structures). Second, chains became relatively less likely to brand their homes with names that linked them directly to the central corporation or sister units (we provide legal and informational explanations for why branding units is likely to increase expected tort liability). In addition to extending the empirical literature on malpractice, the paper provides evidence on the horizontal ownership of service establishments, branding and the choice of business names.

Keywords: Malpractice, Brand, Ownership, Chain

JEL Classification: K13, L5, I1, G18

Suggested Citation

Brickley, James A. and Lu, Susan Feng and Wedig, Gerard J., Malpractice Laws and Incentives to Shield Assets: Evidence from Nursing Homes (March 28, 2014). Simon School Working Paper No. FR 14-09, Available at SSRN: https://ssrn.com/abstract=2417719 or http://dx.doi.org/10.2139/ssrn.2417719

James A. Brickley (Contact Author)

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160L
Rochester, NY 14627
United States
585-275-3433 (Phone)
585-442-6323 (Fax)

Susan Feng Lu

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

HOME PAGE: http://https://sites.google.com/site/susanluhome/home

Gerard J. Wedig

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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