The Effect of Nonprofit Governance on Donations: Evidence from the Revised Form 990

• In Event: Not-for-Profit Accounting and Accounting for U.S. Hospitals

Abstract

In 2008, the Internal Revenue Service instituted a requirement that nonprofit organizations answer a comprehensive list of questions on the Form 990 about their corporate governance. Using this newly available data, we examine whether donors reward nonprofit organizations with better governance. For a sample of 10,846 nonprofit organizations from 2008 to 2010, we first identify seven nonprofit governance dimensions using factor analysis. We then test whether the quality of governance influences donor decisions by including the seven governance factors in the standard donations demand model. We find consistent evidence that donations and government grants are positively associated with factors that capture good governance, including formal written policies (e.g., conflict of interest), independent audits and audit committees, review and approval of executive compensation, board oversight (e.g., board independence), management characteristics (e.g., no related parties), and accessible financial information. Our results have implications for nonprofit managers and regulators. Moreover, mandatory disclosure of governance policies in the nonprofit sector provides an interesting contrast to mandatory adoption of governance policies common for publicly traded companies.

Authors

• Erica Harris, Rutgers, The State University of New Jersey, Camden

• Christine Petrovits, The George Washington University

• Michelle Higgins Yetman, University of California, Davis