Board composition and nonprofit conduct: Evidence from hospitals
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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- 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.
- 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.
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- 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.
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- 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.
- 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.
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