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

32 Pages Posted: 27 Apr 2017

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: June 2017

Abstract

Empirical research on medical malpractice liability has largely ignored incentives to restructure to protect assets. This study provides evidence on asset shielding in the nursing home industry. There was a rapid increase in lawsuits alleging patient neglect or abuse in states with plaintiff‐friendly tort environments beginning in the second half of the 1990s. We document two apparent asset‐shielding trends in these states during the 1998–2004 period: (1) sales of homes by large chains to smaller, more judgment‐proof owners; and (2) a reduced propensity to “brand” chain‐owned units with names that linked them directly to the central corporation or sister units. Twelve states enacted tort reforms during the 2003–2006 period that placed caps on noneconomic damages. Using a difference‐in‐differences (DD) methodology, we find that the trends in asset‐shielding behavior abated or reversed in the states that enacted tort reforms. These findings suggest that tort law affects ownership and other organizational choices in this industry.

Suggested Citation

Brickley, James A. and Lu, Susan Feng and Wedig, Gerard J., Malpractice Laws and Incentives to Shield Assets: Evidence from Nursing Homes (June 2017). Journal of Empirical Legal Studies, Vol. 14, Issue 2, pp. 301-332, 2017, Available at SSRN: https://ssrn.com/abstract=2959105 or http://dx.doi.org/10.1111/jels.12148

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
172
PlumX Metrics