Capital Expenditures and the Availability of Funds

Abstract

Data on capital expenditures and the availability of funds assembled from the annual financial and service records of 42 short-term voluntary hospitals in New York City over two decades were used to analyze the behavior of annual capital expenditures on building and equipment assets. Desired expenditures on capital as a factor of production are viewed as being the result of changes in anticipated output and of the substitution of capital for labor. Actual capital expenditures in each year also reflect the availability of flows of nonoperating revenues and the completion of capital programs initiated in previous years. Nonoperating revenues include philanthropy and earnings on financial assets as principal sources.

A monetary revenue series, adjusted for changes in hospital charges, was used to measure output and thus to separate the effects of demand for hospital services and supply of funds on investment behavior. The data were approached as annual aggregates for 42 hospitals over the years 1946–1966 and as annual hospital averages for teaching and nonteaching hospitals over the same period. In both approaches four causal factors-output, substitution, the flow of nonoperating revenues, and a distributed lag-explained about 95 per cent of the sample variance of capital expenditures. Allowing for available funds reduced the average time required for 95 per cent completion of a capital adjustment from 7 to 3 years. Responsiveness of hospitals to these economic variables suggests that socially desired investment can be attained by (a) “monetizing” needs of groups now underserved; (b) improving availability of funds if used for acceptable public purposes; and (c) including consumers in determining institutional and regional priorities.

Get full access to this article

View all access options for this article.

References

Rorem

C.R.

The Public's Investment in Hospitals. The University of Chicago Press, Chicago, 1930.

Brown

R. E.

Capital financing: Origins and dimensions of the current dilemma. Hospitals 42(20): 43–47, 212, October 16, 1968 (Special Issue on Capital Financing).

Columbia University, School of Public Health and Administrative Medicine. Prepayment for Hospital Care in New York State. A Report on the Eight Blue Cross Plans Serving New York Residents (The Trussell Report), Ray E. Trussell, Study Director, 1960.

Stambaugh

J. L.

A study of the sources of capital funds for hospital construction in the United States. Inquiry IV(2): 3–22, 1967.

Friedman

S. L.

Coleman

A.M.

Appraisal of Hospital Obsolescence, Methods and Findings of a Study of Hospitals in New York City, Special Report 4. Hospital Review and Planning Council of Southern New York, Inc., New York, 1965.

Long

M. F.

Efficient use of hospitals. In The Economics of Health and Medical Care, Proceedings of the Conference of the Economics of Health and Medical Care, May 10–12, 1962, pp. 211–226. University of Michigan, Ann Arbor, 1964.

Ginsburg

P. B.

Capital in Nonprofit Hospital. Ph.D dissertation, Harvard University, 1970.

Miller

M. H.

Modigliani

Some estimates of the cost of capital to the electric utility industry, 1954–1957. The American Economic Review LVI(3): 333–391, 1966.

Resek

R. W.

Investment by manufacturing firms: A quarterly time series analysis of industry data. The Review of Economics and Statistics XVIII(3): 322–333, 1966.

10.

Kuh

Meyer

The impact of monetary policy on investment. In Readings in Macroeconomics, Theory, Evidence, and Policy, pp. 264–270, edited by Keiser

Norman F.

, Prentice-Hall, Englewood Cliffs, N.J., 1970. (Reprinted from Impacts of Monetary Policy, The Commission on Money and Credit, 1963.).

11.

Smith

W. L.

The effect of general credit controls on the major sectors of the economy. In Readings in Macroeconomics, Theory, Evidence, and Policy, pp. 227–252, edited by Keiser

Norman F.

, Prentice-Hall, Englewood Cliffs, N.J., 1970. (Reprinted from Joint Economic Committee, Employment, Growth, and Price Levels, Staff Report, Washington, D. C., 1959.).

12.

Brooman

F. S.

Investment and interest rates. In Readings in Macroeconomics, Theory, Evidence, and Policy, edited by Keiser

Norman F.

, Prentice-Hall, Englewood Cliffs, N.J., 1970. (Reprinted from Macroeconomics, George Allen and Unwin, London, 1963.).

13.

Eisner

A permanent income theory for investment: Some empirical explanations. The American Economic Review LVII(3): 363–390, 1967.

14.

Eisner

Strotz

R. H.

The Eisner-Strotz study of plant and equipment investment. In Readings in Macroeconomics, Theory, Evidence, and Policy, pp. 133–140, edited by Keiser

Norman F.

, Prentice-Hall, Englewood Cliffs, N.J., 1970. (Reprinted from Determinants of Business Investment, Impacts of Monetary Policy, The Commission on Money and Credit, 1963.).

15.

Meyer

J. R.

Glauber

R. R.

The accelerator-residual funds hypothesis. In Readings in Macroeconomics, Theory, Evidence, and Policy, pp. 115–132, edited by Keiser

Norman F.

, Prentice-Hall, Englewood Cliffs, N.J., 1970. (Reprinted from Investment Decisions, Economic Forecasting and Public Policy, Division of Research, Harvard Business School, 1964.).

16.

Jorgenson

D. W.

Siebert

C. D.

A comparison of alternative theories of corporate investment behavior. The American Economic Review LVIII(4): 681–712, 1968.

17.

Jorgenson

D. W.

Handel

S. S.

Investment behavior in U.S. regulated industries. The Bell Journal of Economics and Management Science 2(1): 213–264, 1971.

18.

Reder

M. W.

Some problems in the economics of hospitals. In The American Economic Review, Papers and Proceedings of Seventy-seventh Annual Meeting, December 28–30, 1964, LV(2): 472–480, 1965.

19.

Klarman

H. E.

The Economics of Health. Columbia University Press, New York, 1963.

20.

Muller

Worthington

Allen

Sources and Management of Capital in New York City Voluntary Hospitals. Center for Social Research, City University of New York, September 1971.

21.

Johnston

Statistical Cost Analysis, pp. 94–95. McGraw-Hill Book Company, New York, 1960.

22.

Hicks

J. R.

The Theory of Wages, Ed. 2, pp. 117–120. St. Martin's Press, New York, 1963.

23.

Worthington

Capital-Labor Ratios in Short-term Voluntary Hospitals: A Study of 38 Hospitals in New York City. Ph.D. dissertation, The City University of New York, New York, 1971.

24.

Hall

R. E.

Jorgenson

D. W.

Tax policy and investment behavior. The American Economic Review LVII(3): 391–414, 1967.

25.

Jorgenson

D. W.

Stephenson

J.A.

The time structure of investment behavior in United States manufacturing, 1947–1960. The Review of Economics and Statistics XLIX(1): 16–27, 1967.

26.

Baumol

W.J.

On the social rate of discount. The American Economic Review LVIII(4): 788–802, 1968.

27.

Johnston

Econometric Methods. McGraw-Hill Book Company, New York, 1963.

28.

Gujarati

Use of dummy variables in testing for equality between sets of coefficients in two linear regressions: A note. The American Statistician 24(1): 50–52, 1970.