Five-Star Ratings and Managerial Turnover: Evidence from the Nursing Home Industry

James A Brickley, Susan F Lu and Gerard J Wedig

The Journal of Law, Economics, and Organization, 2021, vol. 37, issue 2, 278-313

Abstract: The government-sponsored Five-Star Quality Rating System (FSQRS) aggregates multiple measures of nursing home quality into a standardized overall rating. Previous research has found that the FSQRS affected consumer demand and correspondingly motivated a strategic shift toward competing for higher ratings, most notably among nursing homes in more competitive markets. The primary objective of this article is to provide evidence on whether it produced a complementary change in the weight placed on quality ratings in senior management retention decisions. Using the Florida nursing home administrator files from 2007 to 2013, our analysis reveals that the FSQRS motivated a substantial and significant increase in the sensitivity of administrator turnover to star ratings, particularly in more competitive nursing home markets (JEL I18, L15, J63, G24, G34).

Date: 2021
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