Merger & Acquisition and Capital Expenditure in Health Care

• Main Authors: Wenjing Ouyang PhD, Peter E. Hilsenrath PhD
• Format: Article
• Language: English
• Published: SAGE Publishing 2017-02-01
• Series: Inquiry: The Journal of Health Care Organization, Provision, and Financing
• Online Access: https://doi.org/10.1177/0046958017692275

Investment, especially through merger and acquisition (M&A), is a leading topic of concern among health care managers. In addition, the implications of this activity for organization and market concentration are of great interest to policy makers. Using a sample of 2256 firm-year observations in the health care industry during the period from 1985 to 2011, this article provides novel evidence that managers learn from financial markets in making capital expenditure (CAPEX) and M&A investment decisions. Within the industry, managers in the Drugs subsector are most likely to do so, whereas managers in the Medical Equipment and Supplies are least likely to do so. We find informative stock prices improve firm financial performance. This article highlights the importance of financial markets for real economic activity in the health care industry.