Does Organizational Form Affect Investment Decisions?

Abstract

I investigate whether organizational changes affect investment decisions using evidence from the hospital industry in the United States. During the 1990s, hospitals and physicians have reorganized the way they trade with each other, vertically consolidating the provision of healthcare services. I provide empirical evidence that hospitals adopting the new organizational forms add more healthcare services over time than hospitals that are independent of their physicians. I also find that when the average percentage of county population covered by each HMO increases, the differences in investment behavior between vertically consolidated and independent hospitals become larger.