OBJECTIVES: Recent increase in competition among hospitals, and managed care, and the impact of Medicare Prospective Payment System; properly measured hospital performance has become important to evaluate the impact of policies on the hospital industry. This study assessed the influence of hospital governance on hospital’s economic performance and efficiency, and it also attempted to systematically address the issue of ‘whether participation by insider and outsider business community stakeholders on the hospital governing board is related to hospital’s economic performance’. METHODS: The study was focused on 144 community hospitals in Tennessee; those provided general and acute care services from 2000 to 2006. An input-oriented and output-oriented Data Envelopment Analysis (DEA) using multiple input and output variables, which is non-parametric, flexible, and a mathematical programming approach for the performance assessment, was used to measure the efficiency by estimating the optimum level of output, conditional upon the mix of inputs. RESULTS: It was found that urban community hospitals were relatively more efficient than rural community hospitals, and smaller community hospitals were relatively more efficient than their larger and medium-sized counterparts. Interestingly, the results revealed that small-sized urban hospitals were relatively more efficient than any other community hospital type. From a management and policy perspective type, the study indicates that both rural and large community hospitals may use urban or small community hospitals as models in areas such as following: to improve efficiency by downsizing the scale of the hospitals, to adopt new marketing strategies, and to change the cost structure of facility operations.  CONCLUSIONS: Results of this work can be useful for guidance to hospital CEOs and administrators, creditors and bondholders, health care consultants, public finance and public accounting researchers, public policy analysts, and the government; to gain insights of this issue of hospital’s economic performance along the above mentioned variables.