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Agency problems and unrelated business income of non-profit organizations: an empirical analysis

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  • C. Du Bois
  • R. Caers
  • M. Jegers
  • C. Schepers
  • S. De Gieter
  • R. Pepermans
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    Abstract

    Nonprofit organizations are traditionally assumed to dislike commercial activities. In the USA, they are however allowed to engage in commercial activities, but the income they derive from these activities is then subject to the so-called 'unrelated business income tax'. If NPOs do indeed dislike commercial income, then why do they engage in these activities? Using a data set of 2103 US NPOs, this study suggests that the presence of agency problems inside the organization can at least provide an explanation for the occurrence of 'unrelated business income'.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 36 (2004)
    Issue (Month): 20 ()
    Pages: 2317-2326

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    Handle: RePEc:taf:applec:v:36:y:2004:i:20:p:2317-2326

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    References

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    1. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    2. 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.
    3. James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
    4. David M. Cutler & Jill R. Horwitz, 1998. "Converting Hospitals from Not-for-profit to For-profit Status," NBER Working Papers 6672, National Bureau of Economic Research, Inc.
    5. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
    6. 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.
    7. Russell Davidson & James G. MacKinnon, 1987. "Testing for Consistency using Artificial Regressions," Working Papers 687, Queen's University, Department of Economics.
    8. Preyra, Colin & Pink, George, 2001. "Balancing incentives in the compensation contracts of nonprofit hospital CEOs," Journal of Health Economics, Elsevier, vol. 20(4), pages 509-525, July.
    9. Joseph J. Cordes & Burton A. Weisbrod, . "Differential Taxation of Nonprofits and the Commercialization of Nonprofit Revenues," IPR working papers 97-15, Institute for Policy Resarch at Northwestern University.
    10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    11. Edward L. Glaeser, 2002. "The Governance of Not-For-Profit Firms," NBER Working Papers 8921, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Goering, Gregory E., 2008. "Welfare impacts of a non-profit firm in mixed commercial markets," Economic Systems, Elsevier, vol. 32(4), pages 326-334, December.
    2. Christoph Starke, 2010. "Serving the Many or Serving the Most Needy?," FEMM Working Papers 100002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, vol. 29(3), pages 982-989.
    4. Christoph Starke, 2012. "Serving the many or serving the most needy?," Economics of Governance, Springer, vol. 13(4), pages 365-386, December.
    5. Gregory E. Goering, 2007. "The strategic use of managerial incentives in a non-profit firm mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 83-91.

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