Management involvement on the board of directors and hospital financial performance

Taleah Collum, Nir Menachemi, Meredith Kilgore, Robert Weech-Maldonado, L. R. Jordan

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Agency theory is used to investigate the relationship between top management team involvement on not-for-profit hospitals' boards of directors (BODs) and hospital financial performance. Governance data collected in 2011 by The Governance Institute was merged with hospital financial performance data from the 2011 Medicare Cost Reports. Then, an ordinary least squares regression model, using propensity score adjustments, was used to evaluate the relationship between management involvement on the BOD and three financial performance profitability ratios: total margin, operating margin, and return on assets. The sample included 637 not-for-profit hospitals, most of which (74.1%) were not government owned. As hypothesized, we found that having a larger number of managers with voting rights on the BOD was associated with lower total margin (β= -0.011, p < .065). Similarly, we found that having a greater percentage of voting BOD members who were managers was associated with lower total margin (β= -0.296, p < .002) and return on assets (β= -0.337, p < .072). We did not find support for the notion that CEO involvement on the BOD is associated with poorer hospital financial performance (β= -0.008, p < .437). Consistent with agency theory, our findings suggest that management involvement on the BOD is associated with poorer hospital financial performance. This finding suggests that management involvement on the BOD may impair the BOD's ability to effectively monitor the actions of management, which may lead managers to make decisions that are more consistent with their own interests than those of the organization.

Original languageEnglish (US)
Pages (from-to)429-445
Number of pages17
JournalJournal of Healthcare Management
Volume59
Issue number6
StatePublished - Jan 1 2014
Externally publishedYes

Fingerprint

Propensity Score
Civil Rights
Politics
Medicare
Least-Squares Analysis
Board of directors
Financial performance
Organizations
Costs and Cost Analysis
Margin
Managers
Return on assets
Agency theory
Governance
Voting rights
Regression model
Propensity score
Relationship management
Profitability
Costs

ASJC Scopus subject areas

  • Leadership and Management
  • Health Policy
  • Strategy and Management

Cite this

Collum, T., Menachemi, N., Kilgore, M., Weech-Maldonado, R., & Jordan, L. R. (2014). Management involvement on the board of directors and hospital financial performance. Journal of Healthcare Management, 59(6), 429-445.

Management involvement on the board of directors and hospital financial performance. / Collum, Taleah; Menachemi, Nir; Kilgore, Meredith; Weech-Maldonado, Robert; Jordan, L. R.

In: Journal of Healthcare Management, Vol. 59, No. 6, 01.01.2014, p. 429-445.

Research output: Contribution to journalArticle

Collum, T, Menachemi, N, Kilgore, M, Weech-Maldonado, R & Jordan, LR 2014, 'Management involvement on the board of directors and hospital financial performance', Journal of Healthcare Management, vol. 59, no. 6, pp. 429-445.
Collum, Taleah ; Menachemi, Nir ; Kilgore, Meredith ; Weech-Maldonado, Robert ; Jordan, L. R. / Management involvement on the board of directors and hospital financial performance. In: Journal of Healthcare Management. 2014 ; Vol. 59, No. 6. pp. 429-445.
@article{be7f3781f8f74ab3a3fc13de4a74d27a,
title = "Management involvement on the board of directors and hospital financial performance",
abstract = "Agency theory is used to investigate the relationship between top management team involvement on not-for-profit hospitals' boards of directors (BODs) and hospital financial performance. Governance data collected in 2011 by The Governance Institute was merged with hospital financial performance data from the 2011 Medicare Cost Reports. Then, an ordinary least squares regression model, using propensity score adjustments, was used to evaluate the relationship between management involvement on the BOD and three financial performance profitability ratios: total margin, operating margin, and return on assets. The sample included 637 not-for-profit hospitals, most of which (74.1{\%}) were not government owned. As hypothesized, we found that having a larger number of managers with voting rights on the BOD was associated with lower total margin (β= -0.011, p < .065). Similarly, we found that having a greater percentage of voting BOD members who were managers was associated with lower total margin (β= -0.296, p < .002) and return on assets (β= -0.337, p < .072). We did not find support for the notion that CEO involvement on the BOD is associated with poorer hospital financial performance (β= -0.008, p < .437). Consistent with agency theory, our findings suggest that management involvement on the BOD is associated with poorer hospital financial performance. This finding suggests that management involvement on the BOD may impair the BOD's ability to effectively monitor the actions of management, which may lead managers to make decisions that are more consistent with their own interests than those of the organization.",
author = "Taleah Collum and Nir Menachemi and Meredith Kilgore and Robert Weech-Maldonado and Jordan, {L. R.}",
year = "2014",
month = "1",
day = "1",
language = "English (US)",
volume = "59",
pages = "429--445",
journal = "Journal of Healthcare Management",
issn = "1096-9012",
publisher = "Foundation of the American College of Healthcare Executives",
number = "6",

}

TY - JOUR

T1 - Management involvement on the board of directors and hospital financial performance

AU - Collum, Taleah

AU - Menachemi, Nir

AU - Kilgore, Meredith

AU - Weech-Maldonado, Robert

AU - Jordan, L. R.

PY - 2014/1/1

Y1 - 2014/1/1

N2 - Agency theory is used to investigate the relationship between top management team involvement on not-for-profit hospitals' boards of directors (BODs) and hospital financial performance. Governance data collected in 2011 by The Governance Institute was merged with hospital financial performance data from the 2011 Medicare Cost Reports. Then, an ordinary least squares regression model, using propensity score adjustments, was used to evaluate the relationship between management involvement on the BOD and three financial performance profitability ratios: total margin, operating margin, and return on assets. The sample included 637 not-for-profit hospitals, most of which (74.1%) were not government owned. As hypothesized, we found that having a larger number of managers with voting rights on the BOD was associated with lower total margin (β= -0.011, p < .065). Similarly, we found that having a greater percentage of voting BOD members who were managers was associated with lower total margin (β= -0.296, p < .002) and return on assets (β= -0.337, p < .072). We did not find support for the notion that CEO involvement on the BOD is associated with poorer hospital financial performance (β= -0.008, p < .437). Consistent with agency theory, our findings suggest that management involvement on the BOD is associated with poorer hospital financial performance. This finding suggests that management involvement on the BOD may impair the BOD's ability to effectively monitor the actions of management, which may lead managers to make decisions that are more consistent with their own interests than those of the organization.

AB - Agency theory is used to investigate the relationship between top management team involvement on not-for-profit hospitals' boards of directors (BODs) and hospital financial performance. Governance data collected in 2011 by The Governance Institute was merged with hospital financial performance data from the 2011 Medicare Cost Reports. Then, an ordinary least squares regression model, using propensity score adjustments, was used to evaluate the relationship between management involvement on the BOD and three financial performance profitability ratios: total margin, operating margin, and return on assets. The sample included 637 not-for-profit hospitals, most of which (74.1%) were not government owned. As hypothesized, we found that having a larger number of managers with voting rights on the BOD was associated with lower total margin (β= -0.011, p < .065). Similarly, we found that having a greater percentage of voting BOD members who were managers was associated with lower total margin (β= -0.296, p < .002) and return on assets (β= -0.337, p < .072). We did not find support for the notion that CEO involvement on the BOD is associated with poorer hospital financial performance (β= -0.008, p < .437). Consistent with agency theory, our findings suggest that management involvement on the BOD is associated with poorer hospital financial performance. This finding suggests that management involvement on the BOD may impair the BOD's ability to effectively monitor the actions of management, which may lead managers to make decisions that are more consistent with their own interests than those of the organization.

UR - http://www.scopus.com/inward/record.url?scp=84925027336&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84925027336&partnerID=8YFLogxK

M3 - Article

VL - 59

SP - 429

EP - 445

JO - Journal of Healthcare Management

JF - Journal of Healthcare Management

SN - 1096-9012

IS - 6

ER -