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Board composition and nonprofit conduct: Evidence from hospitals

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  • Brickley, James A.
  • Van Horn, R. Lawrence
  • Wedig, Gerard J.
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    Abstract

    This study uses data from hospitals to test the hypothesis that management representation on nonprofit boards leads to "excessive" CEO pay, defined as compensation that exceeds the level predicted by a market wage model. We document a relatively small, but statistically significant, positive association between CEO pay and "insider" boards that include the CEO and other employees as members. Additional tests confirm that this result is not driven by endogenous board structure and that excess pay is greater in the absence of competition from for-profit hospitals. We then examine whether management board representation is associated with larger underlying agency concerns that lead to reduced donations. Our tests do not support this hypothesis but do, however, reveal a negative correlation between donations and physician representation on the board - suggesting a potential conflict between the interests of donors and non-employee physicians. Our overall evidence provides empirical support for modeling nonprofit organizations as consisting of competing stakeholders.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 76 (2010)
    Issue (Month): 2 (November)
    Pages: 196-208

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    Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:196-208

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Corporate governance Not-for-profit Hospitals Compensation;

    References

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    1. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
    2. Edward L. Glaeser, 2003. "The Governance of Not-for-Profit Organizations," NBER Books, National Bureau of Economic Research, Inc, number glae03-1, July.
    3. Ballou, Jeffrey P. & Weisbrod, Burton A., 2003. "Managerial rewards and the behavior of for-profit, governmental, and nonprofit organizations: evidence from the hospital industry," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1895-1920, September.
    4. Eldenburg, Leslie & Krishnan, Ranjani, 2003. "Public versus private governance: a study of incentives and operational performance," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 377-404, August.
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    8. Fisman, Raymond & Glenn Hubbard, R., 2005. "Precautionary savings and the governance of nonprofit organizations," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2231-2243, December.
    9. Robert S. Smith, 1979. "Compensating wage differentials and public policy: A review," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(3), pages 339-362, April.
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    12. Weisbrod, Burton A. & Dominguez, Nestor D., 1986. "Demand for collective goods in private nonprofit markets: Can fundraising expenditures help overcome free-rider behavior?," Journal of Public Economics, Elsevier, vol. 30(1), pages 83-96, June.
    13. Edward L. Glaeser, 2003. "Introduction to "The Governance of Not-for-Profit Organizations"," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 1-44 National Bureau of Economic Research, Inc.
    14. Khanna, Jyoti & Sandler, Todd, 2000. "Partners in giving:: The crowding-in effects of UK government grants," European Economic Review, Elsevier, vol. 44(8), pages 1543-1556, August.
    15. Viscusi, W Kip, 1978. "Wealth Effects and Earnings Premiums for Job Hazards," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 408-16, August.
    16. Yetman, Michelle H. & Yetman, Robert J., 2003. "The Effect of Nonprofits' Taxable Activities on the Supply of Private Donations," National Tax Journal, National Tax Association, vol. 56(1), pages 243-58, March.
    17. Okten, Cagla & Weisbrod, Burton A., 2000. "Determinants of donations in private nonprofit markets," Journal of Public Economics, Elsevier, vol. 75(2), pages 255-272, February.
    18. Roomkin, Myron J & Weisbrod, Burton A, 1999. "Managerial Compensation and Incentives in For-Profit and Nonprofit Hospitals," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 750-81, October.
    19. Hallock, Kevin F., 1997. "Reciprocally Interlocking Boards of Directors and Executive Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 331-344, September.
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