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Societal trust and the economic behavior of nonprofit organizations

Author

Listed:
  • Felix, Robert
  • Gaynor, Greg
  • Pevzner, Mikhail
  • Williams, Jan L.

Abstract

This study explores the impact of societal trust on the economic behavior of nonprofit organizations. Although prior studies reveal that trust has a positive impact on the economic behavior of for-profit firms, the institutional differences between the two organization types make it unclear whether trust plays a similar role in nonprofits. Our results show that nonprofits operating in higher trust areas are more likely to overspend on administrative expenses. This positive relationship between trust and overspending is primarily driven by service organizations, as opposed to public charities. Moreover, within service organizations, we find that the positive trust-administrative overspending association is most prevalent in situations of weaker monitoring or governance. Additional tests show trust has a similar impact on excess compensation and abnormal accruals in service organizations. Overall, our findings suggest that trust may provide opportunities for nonprofit managers, particularly in service-oriented organizations, to engage in opportunistic behavior that may be exacerbated by weaker forms of oversight.

Suggested Citation

  • Felix, Robert & Gaynor, Greg & Pevzner, Mikhail & Williams, Jan L., 2017. "Societal trust and the economic behavior of nonprofit organizations," Advances in accounting, Elsevier, vol. 39(C), pages 21-31.
    • Handle: RePEc:eee:advacc:v:39:y:2017:i:c:p:21-31
    DOI: 10.1016/j.adiac.2017.09.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Trust; Nonprofit organizations; Opportunistic spending; Administrative expenses;
    All these keywords.

    JEL classification:

    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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