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Career concerns and accounting performance measures in nonprofit organizations

Listed author(s):
  • Arya, Anil
  • Mittendorf, Brian
Registered author(s):

    Many in the nonprofit sector view accounting-based performance measures to be overly influential and counterproductive in the evaluation of charities and their leaders. The contention is that such measures are imperfect and often biased, leading to dysfunctional rationing of fundraising and administrative infrastructure. To examine these concerns and the broader question of nonprofit executive incentives, we develop a model of nonprofit executives who are concerned with influencing external perceptions. In doing so, we demonstrate that accounting-based performance measures alter executive incentives in critical ways. In particular, disclosure of the functional classification of nonprofits’ expenses can reduce incentives to overinvest in fundraising and restore investments in programs; at the same time, it also comes with the potential downside of undermining key investments in long-term infrastructure.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0361368214000920
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    Article provided by Elsevier in its journal Accounting, Organizations and Society.

    Volume (Year): 40 (2015)
    Issue (Month): C ()
    Pages: 1-12

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    Handle: RePEc:eee:aosoci:v:40:y:2015:i:c:p:1-12
    DOI: 10.1016/j.aos.2014.10.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/aos

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    1. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    2. Milbourn, Todd T & Shockley, Richard L & Thakor, Anjan V, 2001. "Managerial Career Concerns and Investments in Information," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 334-351, Summer.
    3. Oddvar M. Kaarbøe & Trond E. Olsen, 2006. "Career Concerns, Monetary Incentives and Job Design," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 299-316, July.
    4. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 183-198.
    5. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
    6. Emmanuelle Auriol & Guido Friebel & Lambros Pechlivanos, 2002. "Career Concerns in Teams," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 289-307, Part.
    7. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
    8. Bengt Holmstrom & Joan Ricart i Costa, 1986. "Managerial Incentives and Capital Management," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 835-860.
    9. Ranjani Krishnan & Michelle H. Yetman, 2011. "Institutional Drivers of Reporting Decisions in Nonprofit Hospitals," Journal of Accounting Research, Wiley Blackwell, vol. 49(4), pages 1001-1039, September.
    10. Autrey, Romana L. & Dikolli, Shane S. & Paul Newman, D., 2007. "Career concerns and mandated disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 26(5), pages 527-554.
    11. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
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