Teresa D. Harrison

Lessons from the JMCB Archive

We examine the online archive of the Journal of Money, Credit, and Banking, in which an author is required to deposit the data and code that replicate the results of his paper. We find that most authors do not fulfill this requirement. Of more than 150 empirical articles, fewer than 15 could be replicated. Despite all this, there is no doubt that a data/code archive is more conducive to replicable research than the alternatives. We make recommendations to improve the functioning of the archive.

DO MERGERS REALLY REDUCE COSTS? EVIDENCE FROM HOSPITALS

In this paper, we compare potential and realized cost savings from hospital mergers. Our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies. Our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger. However, we also show that over time, cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines.

Entry and Exit in the Nonprofit Sector

Abstract We study the entry and exit dynamics of nonprofit public charities using 1989-2003 tax return data. The observed patterns can be understood using a dynamic industry model based on Jovanovic (1982) that incorporates profit-deviation and a non-redistribution constraint. Both features generate a high exit threshold which implies high net entry rates and low exit rates. The data reveal that nonprofit gross entry rates are lower than those of for-profits in services, while extremely low exit rates (across both sectors and time) result in net entry rates nearly 3 times larger than that of for-profit firms. We find that the behavior of new public charities is remarkably similar to that found in studies of private firms (e.g. new firms begin smaller than the industry mean, but grow faster). However, exit patterns diverge sharply. Besides relatively low exit rates, the survival rate of new nonprofit firms greatly exceeds those found in studies on services and manufacturing. In addition we find that the hazard rate of exit declines with age and size, and with size conditional on age.

OLS and IV estimation of regression models including endogenous interaction terms

ABSTRACT We analyze a class of linear regression models including interactions of endogenous regressors and exogenous covariates. We show how to generate instrumental variables using the nonlinear functional form of the structural equation when traditional excluded instruments are unknown. We propose to use these instruments with identification robust IV inference. We furthermore show that, whenever functional form identification is not valid, the ordinary least squares (OLS) estimator of the coefficient of the interaction term is consistent and standard OLS inference applies. Using our alternative empirical methods we confirm recent empirical findings on the nonlinear causal relation between financial development and economic growth.

The Effect of the Nonprofit Motive on Hospital Competitive Behavior

Abstract In this paper, we employ three simple theoretical models of nonprofit hospitals to investigate equilibrium behavior when hospitals compete. Utilizing a differentiated Bertrand model, we examine how prices, quantity of patients served, service to the uninsured, and quality of care are affected as nonprofits place more weight on profit maximization. We find that the specification of the nonprofit motive greatly impacts the results. When the nonprofit motive is maximizing output, prices rise for both hospitals as the nonprofit moves away from its nonprofit motive. However, if the nonprofit cares about serving the uninsured, prices in the market fall. Finally, when hospitals compete on price and quality, more emphasis on profits results in an increase in price at the for-profit hospital and a decrease in price at the nonprofit hospital. These results suggest that the importance of the nonprofit motive has been underestimated and should be further investigated.

Boards, Executive Excess Compensation, and Shared Power: Evidence from Nonprofit Firms

We investigate how executives, the board, and excess compensation jointly affect the performance of nonprofits. Since the common measure of nonprofit performance often includes salaries, we also use expenses that directly benefit the targeted population. Our results suggest that above average compensation for executives is associated with poor firm performance. However, the negative relation of CEO pay to performance occurs for firms with only one executive, the CEO. We conclude that a powerful CEO with autonomy can harm firm performance, but other executives can mitigate these agency problems. The board also appears to monitor direct community benefits more than indirect benefits.

Too Many Nonprofits? An Empirical Approach to Estimating Trends in Nonprofit Demand Density

Abstract We examine the claim that nonprofit markets have become more crowded over time. A naïve examination of the data indicates that the number of nonprofits has increased rapidly over the past two decades. However, this approach does not account for increases in population, income, or other demand factors that would alter a population’s ability to support additional nonprofits. We attempt to quantify a standard unit of demand for nonprofits over time, by exploiting the panel nature of our data. Our findings indicate that nonprofit density, normalized for changes in demand, in 2005 is lower than it was in 1990. We are also able to examine the impact of incremental increases in population to absorb a nonprofit. Overall, we find that it takes far more people to support nonprofit entry in 2005 compared to 1990. It is likely that technological shifts in production and management techniques introduced since 1990 allow firms to serve larger numbers of people. Consistent with our findings, this type of change would result in fewer nonprofits per market, serving larger numbers of people. Our results therefore provide evidence that growth in the nonprofit sector has not necessarily implied increased density or greater competition in the sector.

Hospital mergers: who merges with whom?

Merger pairings are categorized based on the ownership status, teaching status, hospital size, caseload severity, and geographical distance of merging hospitals to determine the types of hospitals that tend to merge with each other. The results show that mergers between two non-teaching, nonprofit or for-profit hospitals occur more often, but that only ownership status, not teaching status, affects the propensity to merge after controlling for other merger pair characteristics. This paper also finds that hospitals are more likely to merge with a partner of similar size and close geographical proximity, but not necessarily the closest candidate. However, ownership status, not distance between hospitals, is the dominant determinant of merger pairs.

Entry Thresholds and Competitive Behavior Among Nonprofit Firms

This paper attempts to describe the competitive behavior of charitable non-profit firms when prices and output are difficult to observe. The paper exploits cross-sectional variation in market size to estimate the number of non-profits that can be supported within a market. We find that our sample markets generally reach competitive levels once three or more firms are observed. The paper offers several possible interpretations of these findings and future directions for our research.