Health Care Costs and Corporate Investment

80 Pages Posted: 28 Dec 2020 Last revised: 23 Mar 2022

See all articles by (Joy) Tianjiao Tong

(Joy) Tianjiao Tong

Ivey Business School, Western University

Date Written: October 12, 2020

Abstract

Health care costs for U.S. employers tripled in the past twenty years. Using firm-specific health expenses data, I show that firms negatively adjust capital expenditures and R\&D expenses in response to changes in health care costs. The effects are greater for firms that are financially constrained, employ more high-skilled workers, or work with fewer insurers. Additional tests confirm that hiring fewer workers and reducing wages do not offset rising health costs enough to counteract this lower investment channel. My findings suggest that increased health care costs limit a firm's ability to expand physically or through innovation.

Keywords: Investment; Healthcare; Insurance; Non-wage benefits

JEL Classification: J32, G31, I11

Suggested Citation

Tong, (Joy) Tianjiao, Health Care Costs and Corporate Investment (October 12, 2020). Available at SSRN: https://ssrn.com/abstract=3709588 or http://dx.doi.org/10.2139/ssrn.3709588

(Joy) Tianjiao Tong (Contact Author)

Ivey Business School, Western University ( email )

1151 Richmond Street
London, Ontario N6A 5B8
Canada

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