ON THE CAPITAL STRUCTURE OF NON‐PROFIT ORGANISATIONS: A REPLICATION AND EXTENSION WITH BELGIAN DATA

The empirical tests of non‐profit organisations' capital structure theories by Jegers and Verschueren (2006) on a sample of Californian non‐profit organisations (data on 1999) are replicated and extended for a more recent Belgian sample (844 observations pertaining to 2007). Three complementary theories to explain the presence and levels of overall debt and financial debt are examined: equity constraints, agency, and borrowing constraints. The decision to borrow and the amount to be borrowed are analysed separately. The estimations obtained reveal that both are driven by different mechanisms. After having removed outliers, the results show effective equity constraints when explaining debt levels, as observed in the Californian sample with respect to the overall amount of debt. The results also indicate an agency explanation of debt: both the decision to borrow from financial institutions, and the overall amount of (financial) debt are positively affected by the presence of a potential agency gap between board and management. In the Californian sample, the results on this were mixed. Borrowing constraints were almost never discovered, similar to the conclusions reached by Jegers and Verschueren. However, slightly reducing the sample by removing outliers makes borrowing constraints apparent. As to the control variables, size positively affects the probability of borrowing, but, for the organisations taking on debt, negatively affects the level of borrowing. As could be expected, the amount of tangible fixed assets in place is positively related to the amount of financial debt.     

On Being a Financial Manager in a Church Organisation: Understanding the Experience

Accountants and financial managers, as individuals and as occupational groups, are largely invisible in the growing body of financial management literature. In particular, limited privilege has been given to the experiences of financial managers in organisations dominated by social or value‐based goals, rather than financial motives. To begin to address this lacunae, this paper presents a micro study of financial managers 'in motion'( Hopwood, 1987 ) in the state division of a large Australian church. By explicating the financial managers' own perspectives of their experiences, the study provides a unique perspective of understanding of what it is to 'be' a financial manager in a non‐profit entity.     

Accountability and not‐for‐profit organisations: Implications for developing international financial reporting standards

This paper provides empirical evidence which informs contemporary debates on developing international financial reporting standards for not‐for‐profit organisations (NPOs). Drawing on a global survey with respondents showing experience of NPO reporting in 179 countries, we explore: practice and beliefs about NPO financial reporting internationally; perceptions of accountability between NPOs and stakeholders; and implications for developing international financial reporting standards. Interpreting our research in the context of accountability, we find considerable support for developing international financial reporting standards for NPOs, recognising broad stewardship accountability to all stakeholders as important, but prioritising accountability upwards to external funders and regulators.     

The effect of board‐manager agency conflicts on non‐profit organisations’ earnings and cost allocation manipulations

Taking into account agency problems between board and management within non‐profit organisations, for the first time a comprehensive formal model of earnings manipulations is developed. Both organisational earnings as well as disaggregated financial performance indicators are looked at, the last ones being affected by possible indirect cost allocation manipulations. The model takes into consideration the impact of disclosed earnings and performance indicators on externally raised funds, and assumes risk‐neutral managers. In the last section, it is generalised by introducing risk‐averse managers.

The conditions for optimal manipulation levels (from a managerial point of view) are derived. Depending on the (dis) utility parameters involved, different solutions emerge. As to the agency problems, it is shown that, at least for all interior solutions, a single mechanism is at work in all the situations analysed: more agency problems lead to more manipulations, both at the organisational level and the disaggregated level.     

Non‐profit vulnerability: An exploratory study

This mixed‐method study explores the symptoms and potential causes of non‐profit vulnerability within the Australian context. Following two focus groups with CEOs and Chairs of non‐profit organizations, an online survey was developed, pilot tested and distributed to non‐profit CEOs. Our findings suggest three symptoms that might be particularly useful in identifying non‐profit vulnerability: a substantial increase in unit costs/delivery hours; a substantial increase in the proportion of administration to program expenses; and a reduced ability to pursue the organization's mission. The results also suggest various potential causes of non‐profit vulnerability; in particular, Board inadequacies; External environmental threats; Project management issues; and Funding constraints.     

Differentiated regulation: the case of charities

The increasing number and influence of charities in the economy, evidence of mismanagement and the need for information for policymaking are all reasons for establishing charity regulators. Public interest and public choice theories explain charity regulation which aims to increase public trust and confidence in charities (and thus increase voluntarism and philanthropy) and to limit tax benefits to specific organisations and donors. Nevertheless, regulation is resource intensive, and growing pressure on government budgets requires efficiencies to be found. This study proposes regulation differentiated according to charities' main resource providers, to reduce costs and focus regulatory effort, and provides a feasible segmentation.     

PSYCHOLOGICAL CONTRACTS AND JOB SATISFACTION: CLUSTERING ANALYSIS USING EVIDENTIAL C‐MEANS AND COMPARISON WITH OTHER TECHNIQUES

The psychological contract refers to an individual employee's belief in mutual obligations between them and their employer. Psychological contracts are a key management concern, as they can impact employees' attitudes and behaviors in ways that influence organizational efficiency and effectiveness. In this paper, we analyse the relationship between the psychological contract and facets of job satisfaction among non‐profit sector employees, using the nascent non‐hierarchical evidential c‐means (ECM) clustering technique. To date, this technique has been theoretically discussed but not widely applied. Based on the Dempster–Shafer theory of evidence, ECM is novel in facilitating the assignment of objects, not only to single clusters, but to sets of clusters, and no clusters (outliers). The paper compares the theoretical underpinnings and findings from ECM with those of three other well‐known clustering techniques, namely (1) the hierarchical Ward's method, (2) the non‐hierarchical crisp k‐means and (3) the non‐hierarchical fuzzy c‐means approaches. We present and interpret the cluster solutions from each clustering technique. We establish three clusters differentiated by the content of the employees' psychological contracts. These clusters are validated by considering their relationship with facets of job satisfaction, to ensure the clusters are theoretically meaningful. Comparisons of the findings from each technique: (1) provide insights into the relationship between the psychological contract and job satisfaction; (2) reveal what ECM encompasses, relative to other clustering techniques; (3) inform the selection of an appropriate clustering technique for a specific research problem; and (4) demonstrate potential future directions in the development of cluster analysis. Copyright © 2012 John Wiley & Sons, Ltd.     

Making charity effectiveness transparent: Building a stakeholder‐focussed framework of reporting

Effectiveness in achieving mission is fundamental to evaluating charity performance, and is of central concern to stakeholders who fund, regulate and otherwise engage with such organisations. Exploring the meaning of transparency in the context of stakeholder engagement, and utilising previous research and authoritative sector discussion, this paper develops a novel framework of transparent, stakeholder‐focussed effectiveness reporting. It is contended that such reporting can assist the charity sector in discharging accountability, gaining legitimacy and in sharpening mission‐centred managerial decision making. Then applying this to UK charities’ publicly available communications, it highlights significant challenges and weaknesses in current effectiveness reporting.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

Capital Structure Determinants for Tax‐Exempt Organisations: Evidence from the UK

Abstract: This study looks into the determinants of capital structure in the absence of tax incentives. I find that attributes normally associated with debt use for taxable corporations are likewise correlated with debt use in the tax‐exempt sector. These include the organisation's age, asset tangibility, governance structure, industry grouping, liquidity, profitability, and size. Tax‐exempt sector‐specific findings indicate that debt use is also related to the size of the organisation's endowment and the amount of voluntary income. This study also demonstrates the portability of the theory of capital structure by extending the findings in Smith (2010) beyond the United States.     

Research horizons for public and private not‐for‐profit sector reporting: moving the bar in the right direction

The examination of public and private not‐for‐profit sector financial reporting has been a topic of interest on a cyclical basis in Australia over the last 30 years. Traditional topics have included examinations of the intended and unintended consequences of specific standards, the accountability value of financial reports, transaction neutrality, compliance with the accounting standards, and more recently, the prospective implications of new, differently focused reporting standards considering such issues as income measurement and outcomes reporting. With increased recent attention from standard setters and regulators, and greater data availability, the opportunities for undertaking impactful research in these and related areas are increasing. In this paper, we focus on research that has examined the following questions: (i) Which private and public NFPOs lodge financial reports and what is reported; (ii) Who are the users and what are their information needs? (iii) Which private and public NFPs should lodge financial reports and what should be included in them; and (iv) How should the accounting frameworks for NFP sector reporting be set? For each of these issues, we identify the research gaps and opportunities for further research.     

Australian not‐for‐profit sector views on the conceptual framework,accounting standards and accounting information

In this paper, we examine the conceptual framework, accounting standards and accounting information relevant to the not‐for‐profit (NFP) sector. Based on the responses of 242 Australian NFP managers, we find support for the inclusion of accountability in the conceptual framework, and for a common set of accounting standards across NFP and for‐profit sectors with additional standards or paragraphs to recognise NFP specific issues. Respondents also rated information within general‐purpose financial reports to be useful for decision making within their organisations. We offer suggestions as to what our findings mean for the development of accounting standards for the NFP sector.     

Gender and Age Differences in Socio‐economic Inequalities in Total and Avoidable Mortality in Portugal: A Trend Analysis*

The purpose of this paper is to analyse how socio‐economic inequalities in mortality (total and avoidable) evolved in Portugal from the 1990s onwards by looking at differences by gender, age group, poverty and cause of death. Results show that mortality in younger age groups is decreasing faster in the most deprived municipalities. Yet, avoidable deaths do not follow this pattern, particularly with respect to treatable mortality amenable to the health care services. Although total and avoidable mortality are decreasing across all age groups and both genders, decreases in treatable deaths during and after the 2011–14 economic crisis slowed down among the young, with a sharpening of socio‐economic inequalities in avoidable mortality among adults and the elderly. This provides evidence that, in some respects, focusing programmes on those living in poor circumstances has been successful over time. However, the impact of the Great Recession on health care services might have contributed to a significant increase in some treatable causes of death associated with these services.     

PERFORMANCE BASED COMPENSATION IN HEALTH CARE — A SWEDISH EXPERIENCE

In recent years most attempts at reforming health care in Sweden appear to be guided by ideals of decentralization and market orientation. Based on a longitudinal case study of five clinics in a large university hospital this paper questions the general applicability of the market framework in health care. The case story describes how a traditional overall budgeting system was replaced by a performance compensation system in which the clinics were paid a fixed price per unit produced. The new system involved the use of results, balance and funds statements and was also soon to be accompanied by another major reform introducing a purchaser-provider split organization in the county. The story ends by showing how the bold ambitions of establishing strict market like contracting forms fail to materialise and eventually get abandoned.     

A new perspective on post‐earnings‐announcement‐drift: Using a relative drift measure

Prior research finds that there is a delayed reaction to both analyst‐based earnings surprises and random‐walk‐based earnings surprises. Focusing on the market reaction from the post‐announcement window, prior studies show that analyst‐based drift is larger than random walk‐based drift. This finding is counter‐intuitive if we believe large, sophisticated investors tend to trade on analysts’ forecast earnings news and thus react faster and more completely than smaller and less sophisticated investors react to random walk earnings news. In this study, we construct a relative measure of post‐earnings‐announcement drift (PEAD) (i.e., drift as a proportion of total market reaction to earnings news) which we refer to as the ‘drift ratio’, and we provide evidence, consistent with our intuition, that analyst‐based drift ratio is smaller (not greater) than random‐walk‐based drift ratio. We find that this difference is more pronounced in more recent periods and for firms with more sophisticated investors. Our approach to measure the PEAD is more intuitive than that in traditional PEAD literature. Our results thus complement existing research findings by utilizing the drift ratio measure to generate new insights about the drift phenomenon.     

A neural‐network‐based decision‐making model in the peer‐to‐peer lending market

This study proposes an investment recommendation model for peer‐to‐peer (P2P) lending. P2P lenders usually are inexpert, so helping them to make the best decision for their investments is vital. In this study, while we aim to compare the performance of different artificial neural network (ANN) models, we evaluate loans from two perspectives: risk and return. The net present value (NPV) is considered as the return variable. To the best of our knowledge, NPV has been used in few studies in the P2P lending context. Considering the advantages of using NPV, we aim to improve decision‐making models in this market by the use of NPV and the integration of supervised learning and optimization algorithms that can be considered as one of our contributions. In order to predict NPV, three ANN models are compared concerning mean square error, mean absolute error, and root‐mean‐square error to find the optimal ANN model. Furthermore, for the risk evaluation, the probability of default of loans is computed using logistic regression. Investors in the P2P lending market can share their assets between different loans, so the procedure of P2P investment is similar to portfolio optimization. In this context, we minimize the risk of a portfolio for a minimum acceptable level of return. To analyse the effectiveness of our proposed model, we compare our decision‐making algorithm with the output of a traditional model. The experimental results on a real‐world data set show that our model leads to a better investment concerning both risk and return.     

Non‐Audit Service Fees and Financial Reporting Quality: A Meta‐Analysis

Auditing as a corporate governance mechanism has attracted considerable research attention. Because of the information asymmetry between corporate managers and outside shareholders, auditors are hired to provide independent assurance that financial statements are prepared following generally accepted accounting principles. The credibility of such assurance depends on the independence, both in fact and in appearance, of the auditor. Over the years, however, the independence of auditors has come under increased scrutiny because of their joint provision of both audit and non‐audit services. A sizable literature on the impact of non‐audit fees on financial reporting quality has developed. The evidence from this literature, however, remains inconclusive. This paper provides a meta‐analysis of the available literature by assessing (a) the net effect of non‐audit fees on financial reporting quality, and (b) whether there is homogeneity in the financial reporting quality proxies used in the extant literature. Findings suggest that the level of client‐specific non‐audit fees is associated with reduced financial reporting quality. However, the underlying studies used to conduct this meta‐analysis are not homogenous.     

Regulatory Capital Charges for Too‐Connected‐to‐Fail Institutions: A Practical Proposal

The recent financial crisis has highlighted once more that interconnectedness in the financial system is a major source of systemic risk. I suggest a practical way to levy regulatory capital charges based on the degree of interconnectedness among financial institutions. Namely, the charges are based on the institution's incremental contribution to systemic risk based on a risk budgeting approach. The imposition of such capital charges could go a long way towards internalizing the negative externalities associated with too‐connected‐to‐fail institutions and providing managerial incentives to strengthen an institution's solvency position, and avoid too much homogeneity and excessive reliance on the same counterparties in the financial industry.     

The flight‐to‐quality effect: a copula‐based analysis

We derive and estimate a copula combining the features of the Frank and Gumbel copulas to analyse the relationship between equity and long‐term bond returns. Our analysis of quarterly returns from 1952 to 2003 finds that, in general, there is a positive relationship between equity returns and bond returns. In extreme situations, however, there is approximately a one‐in‐seven chance of a flight‐to‐quality effect where large negative equity returns are associated with large positive bond returns.     

“Too‐Small‐To‐Survive” versus “Too‐Big‐To‐Fail” banks: The two sides of the same coin

In the recent crisis, the U.S. authorities bailed out numerous banks through TARP, whilst let many others to fail as going concern entities. Even though both interventions fully protect depositors, a bail out represents an implied subsidy to shareholders, which is not yet the case with closures where creditors are not subsidised. We investigate this non‐uniform policy, demonstrating that size and not performance is the decision variable that endogenously determines one threshold below which banks are treated as TSTS by regulators and another one above which are considered to be TBTF. We, hence, provide a pair of economic rather than regulatory cut‐offs for TBTF and TSTS banks. The shareholders and the other uninsured creditors of a distressed bank are not bailed out if the bank is considered to be TSTS. We further document that the less complex a bank is, the less likely is to be bailed out and, hence, to have all of its creditors protected.