Investment strategies in not -for -profit hospitals.

Long-term investment reserves are a significant component of not-for-profit (NFP) hospitals' overall asset structure and serve as an important source of equity and non-operating revenue for NFP hospitals. Despite the importance of investment reserves, relatively little is known about how hospitals invest and manage these financial assets. This dissertation explores the role of financial assets in NFP hospitals, the investment strategies used to manage investment reserves and the factors that contribute to a hospital's tolerance for risk. This dissertation uses data from the 2003--2004 Commonfund Institute Survey of Healthcare Institutions and the 2003 Medicare cost report. The first study provides an overview of the role of investment reserves in NFP hospitals, and evaluates how NFP hospitals' allocate and manage financial assets. This study takes advantage of contrasting market conditions to demonstrate that in the long run, consistent with financial theory, higher risk results in higher expected returns. In the short run, however, greater exposure to risk can result in substantial variations from year-to-year. The second study examines how levels of risk, asset allocation, and use of investment management professionals differ in NFP hospitals that have both pension and insurance reserves. Results indicate that NFP hospitals allocate a greater proportion of pension funds to stocks versus bonds compared to insurance reserves. Using an entropy-based measure of diversification, the allocation among major asset classes exhibit greater diversification in pension funds compared to insurance reserves. NFP hospitals use relatively more investment professionals to manage insurance reserves than pension funds, however, the management fees for pension and insurance reserves are similar. The third study determines the relationship between organizational, operating, financial, and investment management characteristics of NFP hospitals and investment strategy risk and performance. Regression results indicate that greater investment management expertise is significantly associated with investment strategy risk. Organizational characteristics and operating and financial performance do not appear to be related to investment strategy risk. In terms of fund performance, only levels of risk and the number of investment managers were found to be positively associated with higher annual returns.Ph.D.Health and Environmental SciencesHealth care managementUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/126303/2/3238095.pd