Impact of the Medicaid expansion on U.S. health services firms: Evidence from the 2010 Affordable Care Act

•We examine the Medicaid expansion effect on firm performance in the health services industry.•The Medicaid expansion increased health services firms' return on assets by 0.01.•The Medicaid expansion also enhanced those firms' Tobin's q by 0.21.•Finally, the Medicaid expansion improved those firms' return on equity by 0.17.

This article examines how the Medicaid expansion of the 2010 Affordable Care Act (ACA) affected firm performance in the health services industry. The U.S. federal government expanded Medicaid coverage up to 138% of the federal poverty level for low-income households, and the expansion increased demand for health care services after the ACA. Using quarterly Compustat data from the first quarter of 2009 to the first quarter of 2016, we find that the Medicaid expansion significantly increased firm performance (the return on assets by 0.01, Tobin's q by 0.21, and the return on equity by 0.17) in the health services industry.