The Disappearing Local Newspaper: Implications for Nonprofit Organizations’ Agency Problems

• In Event: 3.01 Nonprofit Research Concurrent Session: Governance/Audit

Abstract

We examine whether local newspaper closures affect agency problems within nonprofits (NPs). We find that NPs decrease their program spending and increase administrative and officer compensation spending following a local newspaper closure. This effect pertains to NPs that have lower levels of (1) restricted donations, (2) local competition, or (3) local voter participation, respectively, suggesting that agency problems are exacerbated after newspaper closures particularly when alternative external monitoring is weak. Further results indicate that donor contributions after newspaper closures increase for NPs with higher levels of restricted donations or those with lower prior year administrative expenses. This suggests that sophisticated donors are unencumbered by the newspaper loss when making donation decisions and that the average donor uses the most recent publicly available information about NPs’ expenses after newspapers close. Finally, excess endowments decrease after newspaper closures, suggesting that endowments are one source of funds for the documented opportunistic spending.

Authors

• Robert Felix, The Catholic University of America

• Mikhail Pevzner, University of Baltimore

• Joshua Khavis, University at Buffalo