| For-profit organizations maintain low levels of cash holdings because financial markets require that cash be used or returned to investors. Not-for-profit hospitals (NFPHs), however, often have large cash balances. Because little is known about either the levels of cash they hold or their management, this dissertation explored what "cash" means, whether NFPHs set target cash levels, what explains their cash holdings and whether finance theories apply to NFPHs.; Data from audited financial statements of 608 hospitals from 1996--99 were used to calculate ratios of cash to expenses, assets, and debt as measures of cash holdings. Hospitals were then ranked by these ratios. Rankings of ratios including cash alone in the numerators were strongly correlated as were rankings with ratios including board-designated funds (BDFs) and cash in the numerators. However, when rankings using cash alone were compared to rankings using cash plus BDFs, the correlation was weak. BDFs should also be considered as cash because they tend to be large and they are invested in readily marketable securities.; Regression analysis showed that freestanding hospitals and hospital systems had target levels of cash only when BDFs were excluded. System-affiliated hospitals did not, most likely because of the cash management policies of their parent organizations.; A regression model looking at the predictors of cash holdings showed a strong relationship between cash holdings and cash profits, asset growth, and financial leverage when BDFs were included. The volatility of profits did not predict cash holdings.; Finally, the applicability of two for-profit finance theories was tested because of their potential to explain how NFHPs manage cash. When BDFs were excluded, the trade-off theory, which posits an optimal level of cash holdings determined by balancing the costs of liquidity and illiquidity, was supported. The financing hierarchy theory, which posits a preference for cash over debt or equity financing, was not validated at all. Thus, for-profit finance theories do not appear to explain NFPH behaviors.; Public policymakers need more detailed information about cash and investment holdings than is currently found in audited financial statements to make informed decisions about the levels of NFPH cash holdings and their management. |
