Debt and Bargaining Outcomes: Evidence from U.S. Hospitals
48 Pages Posted: 2 May 2015 Last revised: 18 Sep 2016
Date Written: September 17, 2016
This paper uses the health care industry as a novel laboratory in which to study a firm's strategic use of debt to enhance its bargaining power during negotiations with non-financial stakeholders. I show that reimbursement rates negotiated between a hospital and insurers for a specific procedure are higher when the hospital has more debt. I show that this effect is stronger when hospitals have less bargaining power relative to insurers ex ante. The contribution of this paper is to provide direct evidence that debt improves a firm's bargaining outcomes.
Keywords: Capital Structure, Bargaining, Stakeholders, Debt, Leverage, Healthcare, Market Competition
JEL Classification: G30, G32, G33
Suggested Citation: Suggested Citation