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Health Care Costs and Corporate Investment

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  • Joy Tianjiao Tong

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.

Suggested Citation

  • Joy Tianjiao Tong, 2024. "Health Care Costs and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1078-1117.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:4:p:1078-1117.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad088
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    More about this item

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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