Capital Structure, Ownership, and Capital Payment Policy: The Case of Hospitals
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This study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a oneperiod stochastic, valuemaximization model. Separate models are developed for forprofit and notforprofit hospitals. Hospital debttoassets ratios are analyzed empirically using a crosssection of data from the American Hospital Association. Although the effect on capital structure of hospital reliance on costbased reimbursement cannot be signed theoretically, in both forprofit and notforprofit cases, a higher costbased share leads to higher leverage. Factors associated with high bankruptcy risk (e.g., earnings volatility) cause hospitals to take on less debt. 1988 The American Finance Association