Health Care Costs and Corporate Investment

Joy Tianjiao Tong

The Review of Financial Studies, 2024, vol. 37, issue 4, 1078-1117

Abstract: Health care costs for U.S. employers have tripled over the past 20 years. Using firm-specific health expense data, I show that firms negatively adjust capital expenditures and R&D expenses in response to increases in health care costs. The effects are more pronounced for firms that are financially constrained, employ more high-skilled workers, and have less bargaining power relative to insurers. Furthermore, policy uncertainty surrounding health care costs is substantial and discourages capital investment. These findings suggest that an elevated level of health care costs and the associated uncertainty limit a firm’s ability to expand physically or through innovation.

JEL-codes: G31 I11 J32 (search for similar items in EconPapers)
Date: 2024
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