Nonprofit Firms Research Articles

Nonprofit accounting conservatism

In this study we examine whether U.S. nonprofit organizations engage in conservative financial reporting, and whether conservatism has an impact on future donations. Employing the model developed by Ball and Shivakumar (2005) for non-public companies, coupled with a sample of over 72,000 industry diverse nonprofit-years, we find evidence consistent with nonprofit firms, on average, reporting conservatively. Further, when we consider stakeholder demand for financial reports, we find that organizations that receive sizable government funding report more aggressively, consistent with a reduced demand for financial statement information. We also consider whether nonprofit managers have incentives to report conservatively, and document that organizations providing bonuses or perquisites to their executives report more aggressively. Finally, we study whether donors value conservative reporting and find that organizations that report conservatively are associated with higher future contributions. We believe these findings will be of great interest to managers, regulators, and those that engage in academic research in this important sector of our economy.

The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralised Public Good Provision

Abstract We study the implications of transparency policies on decentralised public good provision by the non-profit sector. We present a model where imperfect monitoring of the use of funds interacts with the competitive structure of the non-profit sector under alternative informational regimes. Increasing transparency regarding the use of funds may have ambiguous effects on total public good provision and on donors’ welfare. On the one hand, transparency encourages all non-profit firms to engage more actively in curbing fund diversion. On the other hand, it tilts the playing field against non-profits facing higher monitoring costs, pressing them to give up on their missions. This effect on the extensive margin implies that transparency policies lead to a reduction in the diversity of social missions addressed by the non-profit sector. We show that the negative impact of transparency on social mission variety and on donors’ welfare is highest for intermediate levels of asymmetry in monitoring costs.

Remote work during the COVID-19 pandemic: identification of working life impacts, employees’ data protection abilities and trust outcomes

PurposeThis study examined employees’ experiences of remote work and the impact of remote work on working life.Design/methodology/approachThis was a mixed-methods study undertaken in three Finnish nonprofit firms. In total, 1,154 respondents took part during the first and second COVID-19 waves in Finland.FindingsCOVID-19 remote working saved employees’ and businesses’ financial resources; increased job satisfaction, firms’ performances and employee employment opportunities; and positively affected organizations’ trust outcomes. This study found that female team leaders were significantly more likely than male team leaders to trust team members’ data protection abilities. In addition, remote work can reduce climate pollution. Remote work during the COVID-19 pandemic also affected the social lives of the employees and work relationships and led to a reduction in physical activity levels and work overload.Research theoretical implicationsThe main theoretical contributions of this study are the identification of remote working characteristics during the COVID-19 pandemic, positive/negative outcomes of remote working, and further forms measurable propositions. This study contributes to the change management literature and opens up new avenues for future research.Practical implicationsThis study can help managers to better understand and lead employees at a time when significant numbers continue to work remotely. Continued work in this field is important because organizations are required to be agile in a changing operating work environment. Given that home-based work has become the new normal, organizations may need to update their data protection rules and address organizational trust issues.Social implicationsSocial effects can be seen as an increased understanding of the effects of remote work in the colleague network. Although remote work suits many employees, they also wish to see their colleagues occasionally. Thus, a mix of remote work with some in-office time may be a more attractive option than remote work only.Originality/valueThe integrated multidimensional framework applied in this study is based on research findings. The framework is dynamic and can be further expanded with new findings, serving as a theoretical basis to guide future research.

Nonprofit behavior altered by monetary donations: evidence from the U.S. hospice industry.

This study investigates whether reliance on monetary donations alters nonprofit firms' behaviors. Specifically, in the hospice industry, a shorter patients' length of stay (LOS) speeds up overall patient turnover, allowing a hospice to serve more patients and expand its donation network. We measure hospices' donation reliance using the donation-revenue ratio, which indicates the importance of donations for revenue structure. By exploiting the supply shifter of donation, we adopt the number of donors as an instrument to control for the potential endogeneity issue. Our result suggests that a one-percentage-point increase in the donation-revenue ratio decreases patient LOS by 8%. Hospices that are more reliant on donations serve patients diagnosed with diseases that have shorter life expectancies to achieve a lower average LOS of all patients' stay. Overall, we find that monetary donations alter the behavior of nonprofit organizations.

Enterprise Risk Management Maturity: A Clinical Study of a U.S. Multinational Nonprofit Firm

This study, which is based on actual events, presents a dynamic analysis of the development, implementation, and post-implementation review of establishing an enterprise risk management (ERM) system for a U.S. multinational nonprofit firm over a 5-year period, 2015–2020. Using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), questionnaire-based risk data and multi-dimensional risk mapping indices are used to identify and prioritize the firm’s key strategic risks leading to the development of mitigation strategies whose performance are reviewed post ERM implementation, including during the 2020 Coronavirus pandemic. The results reveal that the firm’s risk management system has been ad hoc and uncoordinated. Post-implementation review of the ERM program shows improvements in financial and operating positions resulting from risk diversification, enhanced profitability, exploitation of natural hedges, and improved board governance. The results further show that the recommended mitigation strategies have been effective in managing the adverse impact of the pandemic. Overall, the evidence offered in this study provides further support on the valuation benefits of ERM maturity within a real-world environment.

Strong client orientation, little leverage in nonprofit firms?

Nonprofit firms can be multi-stakeholder organizations, in which employees, clients, volunteers, public institutions, and funders can have formal or informal power to affect corporate strategy. This paper focuses on nonprofit firms’ orientation toward clients and investigates its role in shaping capital structure. We first develop a theoretical framework and derive conditions under which the relationship between leverage and client orientation—measured by how much nonprofit firms weigh clients’ utility relative to earnings—is either positive or first negative and then positive. We then provide an empirical analysis of social cooperatives in the Italian social care sector and find a negative relationship between leverage and client orientation—proxied by the ratio of voluntary workers to total workforce.

Socially Responsible Newsvendor

We consider a socially responsible firm that is concerned with its profit as well as consumer surplus, following the preference of pro-social executives, consumer activists, activist shareholders, or a government shareholder. Specifically, we study the decisions faced by a newsvendor whose objective is modeled as a weighted average of the expected profit and consumer surplus, with the weight on consumer surplus referred to as the corporate social responsibility (CSR) level. Our model includes the pure profit-maximizing and non-profit firms as two extreme cases. We study the firm's optimal inventory decision in the base model and the optimal joint price and inventory decisions in an extension. Our results show that the socially conscious executives (resp., the government as a shareholder) would face less resistance from the firm's general shareholders (resp., the firm) when imposing a lower CSR level, yet with which it enjoys a more significant improvement in boosting consumer surplus at the cost of a marginal profit loss by the firm, in both relative and absolute terms. We also provide demand-distribution-free guarantees on the performance of enduring profit loss in exchange for consumer surplus achieved by a CSR level. Moreover, we show that the same level of demand variability has a less negative impact on the firm's objective when its CSR level is higher; under normal demand, with a little CSR, such a negative impact has a larger reduction for a product with a higher coefficient of variation or a lower critical ratio. Finally, one of our numerical studies using practical data demonstrates that for an influenza vaccine of Afluria Quadrivalent, a CSR level of 10\% enables the firm to improve consumer surplus by 17.8\% (of the maximum improvement) at the expense of a profit loss of only 1.2\% (of the maximum loss) for a typical demand's coefficient of variation level of $0.4$. Our results imply and quantify the managerial insight that a little CSR can go a long way, which holds robustly in a variety of forms and senses for the newsvendor setting.

My supervisor supports me better than the past: integration of social and temporal comparison

PurposeDrawing on the self-consistency theory and temporal comparison theory, this study hypothesize that relative perceived supervisor support may positively affect voice behaviour and negatively affect relationship conflict with a supervisor. This relationship happens through the underlying process of supervisor-based self-esteem acts as an underlying mechanism. But, such a relationship would be constrained by the value of temporal perceived supervisor support with high temporal perceived supervisor support strengthen this relationship as compared to low temporal perceived supervisor support.Design/methodology/approachDyad data from 338 samples of employees nested within 50 supervisor workgroups from non-profit firms operating in three different cities in Sindh Pakistan were taken.FindingsData analysis showed that employees with a high perception of relative perceived supervisor support engaged in voice behaviour and restrain themselves from the relationship conflict. The supervisor-based self-esteem derived from supervisor support played the role of mediating this relationship. Moreover, temporal perceived supervisor support not only moderated the path between relative perceived supervisor support and supervisor-based self-esteem also the mediational strength of supervisor-based self-esteem in relative perceived supervisor support and voice behaviour and relationship conflict.Practical implicationsIt is crucial to integrate social comparison in organizational support theory to view the supervisor–subordinate relationship beyond dyad. Managers should understand social comparison processes in which employees engage in to know how it affects various work attitudes and behaviours.Originality/valueGiven the importance of supervisor–subordinate relationships, the authors extend and build on the concept of social and temporal organizational support to supervisor support. The study is novel in studying such relationship and contribute to the supervisory support relationship literature beyond dyadic level.

Nonprofit Governance in an Age of Compliance

The stakes for proper nonprofit governance are extremely high. Over 1.5 million nonprofits are registered with the IRS, collectively employing 12 million people and accounting for 5.4% of US GDP. Yet while for-profit companies have significant checks on the behavior of boards and management, nonprofit firms lack many of the same types of internal and external governance control mechanisms. Covid-19 is just the latest shock to expose the lack of preparedness and capability of many nonprofit boards in fulfilling their essential governance functions. This Article contributes to the corporate governance literature by identifying aspects of nonprofit governance that create unnecessary risk to nonprofit entities and to society overall. Currently many governance failures that would be corrected in traditional for-profit entities go unaddressed among nonprofits. We make unique contributions to addressing these governance shortcomings by suggesting an enforcement reorientation by both public and private actors. Our novel solutions encompass disclosure, certification, oversight by state attorneys general, and federal actors.

Do Foster Care Agencies Discriminate Against Gay Couples? Evidence from a Correspondence Study

AbstractThere has been considerable recent debate regarding proposed policies that would allow foster care administrators to discriminate on the basis of the sexual orientation of the foster parent. To date, however, we know very little about the level of discrimination on the basis of sexual orientation in the foster care system. To the best of our knowledge, this is the first empirical investigation to ask whether foster care agencies, the public, and nonprofit firms that facilitate foster care placements respond similarly to e‐mails sent by fictitious same‐sex and heterosexual couples who inquire about becoming foster parents. Our results suggest that, while foster care agencies respond at somewhat similar rates to gay male couples, gay female couples, and heterosexual couples, responses sent to gay males are of lower quality. Gay males receive much shorter responses that take longer to receive. Responses to gay male couples are also less likely to include essential information about the process of becoming a foster parent, such as details about informational sessions or being given an application. We do not find any evidence of differential treatment towards same‐sex female couples.

Differences in consumer-benefiting misconduct by nonprofit, for-profit, and public organizations

We examine how organizations of different types – nonprofit, for-profit, and public – engage in consumer-benefiting misconduct (CBM) by examining which patients benefit from hospitals of the three types gaming the market for liver transplants. Consistent with our theory, we find that public firms are the least likely of the three organization types to engage in CBM. We find that for-profit firms engage in CBM for any paying consumers, nonprofit firms engage in CBM for their mission-driven beneficiaries, and public organizations engage in CBM for the set of consumers that their voting constituents direct them to serve. We also examine how the three organization types respond to others’ engagement in CBM, and explore heterogeneity in CBM within nonprofit and public organizations. As the first paper to theoretically predict and empirically examine differences in CBM across nonprofit, public, and for-profit firms, this paper has important implications for our understanding of how distinct governance structures influence misconduct.

Getting ahead in the race for a cure: How nonprofits are financing biomedical R&D

In recent years, nonprofit firms focused on specific diseases have increased their grantmaking efforts in the search of a cure. They have become more aggressive in directly funding research and lobbying for public support, even if their cause affects a small number of people. This paper contributes to the literatures on R&D financing by developing the first production function for disease and medical research nonprofits, a growing funder of biomedical R&D. Using IRS data, the model estimates the role of market competition and firm demographics on the adoption of grantmaking and lobbying strategies. Most notably, results provide evidence that firms in more geographically concentrated (less competitive markets) are more likely to adopt a lobbying strategy and less likely to be grantmaking on the extensive margin. Descriptive cases also illustrate funding discrepancies between charitable and government support across disease prevalence.

Decisions of firm risk and the role of organizational identity

Due to risk aversion, nonprofit firms are believed to have a lower propensity to innovate than for-profits. In turn, social enterprises have arisen as a popular alternative to nonprofits under the expectation that their for-profit practices will lead to increased social innovation. Yet, hybrid firms face uncertainty in their organizational identity, which may detract from their propensity to innovate. Further, there is little empirical work on the actual differences of risk-taking outside of for-profit firms. This paper assesses how the organizational identity of a firm impacts their decisions of risk. Using survey data from the US state of North Carolina, logistic estimations reveal that organizational identity has differential impacts across firm structures. Specifically, for-profit firms benefit from an entrepreneurial identity, while nonprofit firms are hindered by a hybrid identity. This paper provides important developments in our understanding of the role of organizational identity on risk-taking behavior beyond traditional for-profit firms.

Comparing financial transparency between for-profit and nonprofit suppliers of public goods: Evidence from microfinance

Previous research finds market financing is favored over relationship financing in environments of better governance, since the transaction costs to investors of vetting asymmetric information are thereby reduced. For industries supplying public goods, for-profits rely on market financing, while nonprofits rely on relationships with donors. This suggests that for-profits will be more inclined than nonprofits to improve financial transparency. We examine the impact of for-profit versus nonprofit status on the financial transparency of firms engaged with supplying public goods. There are relatively few industries that have large number of both for-profit and nonprofit firms across countries. However, the microfinance industry provides the opportunity of a large number of both for-profit and nonprofit firms in relatively equal numbers, across a wide array of countries. Consistent with our prediction, we find that financial transparency is positively associated with a for-profit status. Results will be of broad interest both to scholars interested in the roles of transparency and transaction costs on market versus relational financing; as well as to policy makers interested in the impact of for-profit on the supply of public goods, and on the microfinance industry in particular.

The impact of celebrity endorsement in cause related marketing campaigns on audiences’ behavioral intentions: Egypt case

This study tests the impact of celebrity endorsement in cause- related marketing (CrM) campaigns, specifically in the non-profit firms in Egypt. This study is based on examining the impact of the five main elements of celebrity endorsement: celebrity attractiveness, celebrity expertise, celebrity trustworthiness, celebrity familiarity and celebrity-cause fit on audience’s attitudes and their behavioral intentions to donate to the firms’ causes. This study relied on quantitative approach, which involves distributing, collecting, and analyzing a large-scale questionnaire survey. Questionnaires were electronically distributed. Data were collected from 390 respondents based on convenience sampling technique and were analyzed using Structural Equation Modelling (SEM), AMOS 22. The findings showed that celebrity attractiveness has the most significant positive direct impact on audience’s attitudes towards CrM campaigns. Moreover, celebrity-cause fit and celebrity trustworthiness have an acceptable level of significant positive direct impact on audience’s attitudes towards CrM campaigns. However, celebrity expertise and celebrity familiarity do not have a significant impact on audience’s attitudes towards CrM campaigns. Findings further indicated that audience’s attitudes have a significant positive direct impact on their behavioral intentions to donate to the firms’ causes. This study contributes on the theoretical level in many ways: by adding to the area of celebrity endorsement in CrM campaigns, particularly in non-profit firms, the field in which there is a lack of research; by combining several social causes that use different types of celebrities in one study; by developing a conceptual framework that links between five main elements of celebrity endorsement, audience’s attitudes and their behavioral intentions to donate to the firms’ causes in Egypt, which recently has witnessed a growing trend of endorsing celebrities in numerous charitable firms. It also provides crucial directions to the marketing specialists about the required elements for an effective use of celebrity endorsement in CrM campaigns, which helps in building positive audience’s attitudes. This may lead to positive behavioral intentions to donate to the firms’ causes.

KIDS OR CASH? EXPLORING CHARTER SCHOOL RESPONSES TO DECLINING GOVERNMENT REVENUES

While the literature is extensive on school districts' revenue sources, less research has been done on the impact of donations on school district funds. In this paper, we extend the theoretical literature on crowding out of private donations by government grants for one type of nonprofit firm, namely charter schools. The theoretical model leads us to focus on the key relationships among fundraising effort, enrollment (which is tied to federal and state funding) and donations. Using a dataset on Texas charter schools we adopt a two‐stage approach to examine the empirical relationship between changes in nondonor revenues and the donations received by charter schools. Like the extensive empirical estimates of the effects of government grants on donations for other types of nonprofit firms, we find evidence of crowding‐out with respect to our sample of charter schools. We also find a significant, positive effect of fundraising on donations with a $1 increase in fundraising associated to a $0.58 increase in donations, a pattern consistent with overinvestment in fundraising. Enrollments exhibit a robust inverse relationship to changes in nondonor revenues. (JEL H00, H32, H50)

Private Health Insurance in France: Between Europeanization and Collectivization.

In France, private health insurance (PHI) has an exceptionally high level of coverage and accounts for 13.7% of health expenditures. A complementary and voluntary scheme, it has been historically dominated by nonprofit, mutual benefit societies. Over the past 20 years, however, the market share of for-profit insurance companies has increased by 47%. Financialization of the field developed, and competition based on new risk management strategies also increased. The broad aim of this paper is to characterize and to elucidate the causes of this trend. More specifically, we are interested in how and to what extent a series of supranational and national policies contributed to this situation. Our data come from three sources. We first reviewed documents published by health insurers, government reports, and newspaper articles. We then conducted two semistructured interview campaigns between September 2017 and May 2018. The first mostly covered private and public actors and their involvement in European Union (EU) policymaking (n = 21). The second series of interviews was conducted with another group of actors directly involved at the French level (n = 16). Our findings support preliminary observations. PHI in France, we argue, is indeed facing a development of competition and marketlike instruments. Four major policies (two EU directives and two national reforms) played a significant role in this outcome. Surprisingly, however, it has never been the purpose of legislators and policymakers: while EU directives created a regulatory framework for insurance activities within the Single Market, policies adopted at the national level initially aimed at improving health coverage. We show that it is the interactions and the noncoordination among all of these policies that explain their unexpected outcome. The trend described in this paper is twofold. The first is Europeanization, as PHI in France is increasingly affected by EU legislation. Since this framework tends to favor larger firms and for-profit companies, a reduction in statutory coverage can no longer be considered a quasi-neutral transfer from (publicly owned) social security to nonprofit providers. At the same time, PHI is shifting toward collectivization: as competition increases, complementary health coverage is becoming gradually standardized and based at the corporate level. Together, these changes are likely to reduce freedom of choice and individual welfare, an assumption supported by studies published on the most recent period.

The role of organizational forms in nonprofit firms' real earnings management: Evidence from nonprofit hospitals in Taiwan

Using a sample of 319 Taiwan's nonprofit hospital-years over the period of 2005–2010, we uncover evidence that nonprofit hospitals engage in real activity manipulation to meet earnings benchmarks through both core operating- and non-revenue-generating- expenditures. More importantly, we provide novel insight into the role of organizational forms in real earnings management for the nonprofit hospital sector. While private hospitals manipulate expenditures significantly upward or downward to achieve specific net income benchmarks, public hospitals, which are characterized by weaker financial incentives, manipulate earnings less extensively. We further find that, among private hospitals, real activity management is more pronounced in the non-religious group, suggesting that entity-level religiosity is likely to deter undesirable behavior.

Nonprofit Expense Management and the Zero-Profit Threshold

In a wide variety of settings, individuals target round-numbered thresholds, relaxing effort when they are out of reach. By examining nonprofits’ propensity to cut expenses relative to the attainability of the zero-profit threshold, I show that this phenomenon occurs in nonprofits as well. I find nonprofit firms are more likely to cut expenses when faced with small expected losses than with larger losses. This suggests managers are motivated by desire to reach the zero-profit threshold rather than to improve firms’ economic situations, as the propensity to cut expenses is lower when the threshold is out of reach. This pattern varies predictably with incentives to reach the zero-profit threshold. My results are stronger in firms that have recorded losses in the prior period, which are under a greater incentive to avoid losses in the current period; they do not hold for disaster relief organizations, which I do not expect to target the zero-profit threshold on an annual basis. My results begin to close the gap in our understanding of expense management in nonprofit firms, showing how operating expenses can be used to manage earnings. Additionally, they suggest that even the lack of explicit profit motive may not quell earnings management behavior.

Better together: Coexistence of for-profit and nonprofit firms with an application to the U.S. hospice industry

Many markets maintain a nontrivial mix of both nonprofit and for-profit firms, particularly in health care industries such as hospice, nursing homes, and home health. What are the effects of coexistence vs. dominance of one ownership type? We show how the presence of both ownership types can lead to greater diversity in consumer types served, even if both firms merely profit-maximize. This is the case where firms serve consumers for multiple consumption durations, but where donations are part of a nonprofit firm objective function and happen after services have been provided. This finding is strengthened if the good or service has value beyond immediate consumption or the direct consumer. We show these predictions empirically in the hospice industry, using data containing over 90 percent of freestanding U.S. hospices, 2000–2008. Nonprofit and for-profit providers split the patient market according to length of stay, leading to a wider range of patients being served than in the absence of this coexistence.