Asset Efficiency, Capital Structure, and Network Ownership as Determinants of Private Hospital Financial Performance: Evidence from Georgia

Abstract

Introduction: The financial strength of private hospitals depends not only on the size of their asset base but also on their ability to convert available capacity into operating returns and usable cash. This issue is particularly relevant in Georgia, where hospital provision is predominantly private, infrastructure expansion has been substantial, and diagnosis-related group (DRG)-based reimbursement has increased the financial importance of cost efficiency and asset utilization. Objective: To identify the financial determinants of performance among private multiprofile hospitals in Georgia during 2021–2024, focusing on asset utilization, fixed-asset intensity, leverage, liquidity, operating cash flow, and network ownership. Methods: A quantitative panel-data study was conducted using the audited financial statements of 33 first- and second-category private hospitals. The balanced panel comprised 132 hospital-year observations. Five hypotheses were tested using fixed-effects and Mundlak-corrected random-effects regression models with hospital-clustered robust standard errors. Return on assets (ROA) was the principal performance measure, supplemented by EBITDA margin, operating profit margin, and net profit margin to capture specific financial mechanisms. Results: Hospital size and asset turnover were the most consistent positive determinants of financial performance. Asset turnover showed a particularly strong positive association with EBITDA margin. Higher leverage was negatively associated with ROA and net profit margin, indicating pressure on final profitability. Fixed-asset intensity had no independent significant effect on performance; however, its interaction with asset turnover was negative and significant, suggesting that the benefits of asset utilization diminish in hospitals with more fixed-asset-intensive structures. Operating cash flow relative to total assets was more informative than the current ratio as a predictor of performance. The performance gap between network-owned and independent hospitals widened during the later years of the study period. Conclusion: The financial performance of Georgian private hospitals is determined more by the effective utilization of assets and the generation of operating cash flow than by the size of the asset base or conventional liquidity measures alone. Asset turnover and fixed-asset intensity should therefore be interpreted jointly. The findings also indicate that leverage and ownership structure have increasingly important implications for hospital profitability.