Economic Shocks and Healthcare Capital Investments

Information technology (IT) can enhance firms’ long-run performance but is also a risky investment, with high fixed costs and uncertain returns. Whether market events influence this tradeoff has received limited attention. We leverage the healthcare context to empirically examine hospitals’ IT investments following economic downturns and public insurance expansions––i.e., large industry shocks in opposite directions. We find novel and symmetrical responses. Recessions restrain investments while expansion policy indirectly stimulates them. Importantly, the IT margin is more elastic than other spending responses to market fluctuations. Supplementary analyses suggest that hospitals’ finances and perceptions of uncertainty drive these capital investment adjustments.