Impact of Accounting Information and Its Quality on Government Grantmaking Decisions

• In Event: Quality of Accounting Information

Abstract

When making grants to nonprofit organizations, governments value both accountability and reliability of organizations. However given constrained budgets, program ratios and administrative ratios that respectively capture nonprofits’ accountability and reliability are difficult to improve simultaneously. We examine how governments balance their preference for higher program ratios and higher administrative ratios. We find that governments focus on the reliability of organizations in delivering services and tend to reward grants to nonprofit organizations with higher administrative ratios. However, higher program ratios are not consistently preferred by governments in their grantmaking decisions. We then examine how governments react to low-quality ratios, as prior research finds that both program and administrative ratios are subject to intentional manipulation as well as unintentional errors. Our findings indicate that governments can identify low quality ratios and punish organizations that have low quality ratios by reducing the likelihood of awarding them grants and by lowering the amount of money offered.

Authors

• Walid BenAmar, University of Ottawa

• Qiu Chen, University of Ottawa

• Shujun Ding, University of Ottawa