The Capital Structure of Hospitals and Reimbursement Policy

THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 37, No. 1 (Spring 1997)

Posted: 25 Nov 1996

Abstract

Empirical research has shown that hospitals have higher than average leverage, the extent of leverage is related to the extent of cost-based reimbursement, and not-for-profit hospitals are not as highly levered as their for-profit counterparts. Previous theoretical work does not unambiguously predict all of these results. This article develops a model of reimbursement policy and proves that, if reimbursement follows the indicated pattern, the Modigliani-Miller capital structure irrelevance theorem fails to hold and given reasonable restrictions upon the utility functions of not-for-profit donor/investors, each of the empirically observed results would be expected ex ante.

JEL Classification: G32, I10

Suggested Citation

Ligon, James A., The Capital Structure of Hospitals and Reimbursement Policy. THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 37, No. 1 (Spring 1997). Available at SSRN: https://ssrn.com/abstract=5062

James A. Ligon (Contact Author)

University of Alabama ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-6313 (Phone)
205-348-0590 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
849
PlumX Metrics