How Does the Ethical Environment Matter to Hospital Performance?

This study investigates how hospital performance may be influenced by environmental ethics, measured by regional medical corruption cases. To address the endogeneity issue, we use corruption cases in non-medical sectors as instrumental variables for medical corruption in regions with hospital operations. Our analysis combines data on corruption investigations with hospital management and performance measures from the World Management Survey, covering more than 500 hospitals in China from 2014 to 2016. We found that a one-third increase in corruption cases in a region reduces management quality by 0.05 standard deviations, increases the complication rate by 3%, and increases the length of stay by 0.15 days. Subgroup analyses revealed that the negative effects of corruption are particularly pronounced for management quality in younger hospitals and for performance outcomes in older hospitals. Furthermore, we found that compared with corruption at the hospital-leader level, corruption among hospital staff has stronger negative effects on management quality and service outcomes. Our findings also show that corruption can distort the incentives and operational priorities within hospitals. Our work helps improve the understanding of the relationships between the ethical environment and hospital performance outcomes, offering insightful implications for better governance and policy settings in developing and transitional health systems.