Tax-exempt debt and the capital structure of nonprofit organizations: An application to hospitals Academic Article

abstract

• The availability of tax-exempt financing provides nonprofit (NP) organizations with their own tax-based incentives to issue debt. In this article, we develop a theoretical model in which NPs gain an indirect arbitrage from tax-exempt debt issuance, constrained by: 1) the requirement that fixed investment exceed tax-exempt debt flows (the project financing constraint), and 2) the constraint against share issuance. These constraints cause them to impute tax benefits to projects that afford access to the tax-exempt bond market. Empirical tests indicate that NP hospitals behave as if they have target levels of tax-exempt debt. Debt targeting is constrained by the availability of capital projects, while excess debt capacity stimulates investment.

authors

• Morrisey, Michael

published proceedings

• JOURNAL OF FINANCE

altmetric score

• 3

author list (cited authors)

• Wedig, G. J., Hassan, M., & Morrisey, M. A.

citation count

• 47

publication date

• September 1996

publisher

• Wiley  Publisher

keywords

• 35 Commerce, Management, Tourism And Services
• 3502 Banking, Finance And Investment
• 3507 Strategy, Management And Organisational Behaviour
• 38 Economics
• 3801 Applied Economics
• Behavioral And Social Science

Digital Object Identifier (DOI)

• 10.1111/j.1540-6261.1996.tb04069.x

start page

• 1247

end page

• 1283

volume

• 51

issue

• 4

URL

• http://dx.doi.org/10.1111/j.1540-6261.1996.tb04069.x