University of Arizona – Department of Finance
October 23, 2015
This paper uses the health care industry as a novel laboratory in which to study a firm’s strategic use of debt to enhance its bargaining power during negotiations with non-financial stakeholders. I show that reimbursement rates negotiated between a hospital and insurers for a specific procedure are higher when the hospital has more debt. In order to strengthen causality, I show that this effect is stronger when hospitals have less bargaining power relative to insurers ex ante. The contribution of this paper is to provide direct evidence that debt improves a firm’s bargaining outcomes.