Precautionary savings and the governance of nonprofit organizations |
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Institution: | 1. Graduate School of Business, Uris 823, Columbia University, New York, NY 10027, United States;2. Economics and Finance, Graduate School of Business, Uris 101, Columbia University, New York, NY 10027, United States;1. Faculty of Chemistry, Razi University, Kermanshah 671496734, Iran;2. Laboratorio de Desarrollo Analítico y Quimiometría (LADAQ), Cátedra de Química Analítica I, Universidad Nacional del Litoral, Ciudad Universitaria, CC 242, S3000ZAA Santa Fe, Argentina;3. Quality & Technology, Department of Food Science, Faculty of Science, University of Copenhagen, Copenhagen, Denmark;4. Department of Biology, Faculty of Science, Razi University, Kermanshah, Iran;1. Graduate School of Life Science, Hokkaido University, Sapporo, 060-0810, Hokkaido, Japan;2. Faculty of Advanced Life Science, Hokkaido University, Sapporo, 060-0810, Hokkaido, Japan;1. Georgetown University, United States;2. Securities and Exchange Commission, United States |
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Abstract: | We present a model of nonprofit governance built on two assumptions: (1) organizations wish to hold precautionary savings in order to smooth expenditures; and (2) it is relatively easy for managers to divert these funds for personal use. Hence, donors face a trade off between expenditure smoothing and donation dissipation. We examine the model's predictions using panel data on U.S. nonprofits. We show that organizations in states with poor government oversight have managerial compensation that is more highly correlated with inflows of donations and allocate a smaller percentage of donations to the endowment for future expenditures relative to organizations in strong oversight states. |
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