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Relevance of corporate governance practices in charitable organisations

Author

Listed:
  • Krishna Reddy
  • Stuart Locke
  • Fitriya Fauzi

Abstract

Purpose - The purpose of this paper is to examine whether the registered charities in New Zealand have adopted the principle‐based corporate governance practices similar to those adopted by the publicly‐listed companies and the effect corporate governance practices have on their financial performance measured by technical efficiency, allocative efficiency and quick ratio. The paper addresses four important questions: how registered charities in New Zealand are managed and controlled; whether the funds donated to registered charities are utilised effectively; the nature of the corporate governance practiced by registered charities in New Zealand; and the nature of compliance to the Charities Act 2005. Design/methodology/approach - Panel data for the registered charities over the period 2008‐2010 are analysed using ordinary least squares (OLS) regression and Tobit model regression. Technical efficiency, allocative efficiency and quick ratio are used as the dependent variables. Findings - The findings indicate that there is no reporting requirement for the registered charities under the Charities Act 2005 to report detailed information regarding the board make‐up, board committees, board meetings, etc. and therefore, registered charities have not reported such information. The results show also that board gender diversity is an important corporate governance mechanism to mitigate agency problem in charitable organisations in New Zealand. However, large board size and large donors have potential to increase agency costs in charitable organisations in New Zealand. Research limitations/implications - Caution should be exercised when interpreting and generalising the paper's results, as this study is a case study of registered charities in New Zealand and data comprised only large charities that have revenue over NZ$20 m. It should also be noted that there was a small sample size, which may have had a bearing on the results. Practical implications - This study offers insights for policy makers and practitioners interested in adopting similar corporate governance practices within their country. Social implications - Within New Zealand, issues relating to management and control of charitable organisations are better understood and as a consequence, development of sector‐wise standards could be initiated. Originality/value - This research is novel as it investigates the nature of corporate governance practices relating to the registered charities in New Zealand. The availability of data provided by Charities Commission made this research possible.

Suggested Citation

  • Krishna Reddy & Stuart Locke & Fitriya Fauzi, 2013. "Relevance of corporate governance practices in charitable organisations," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 9(2), pages 110-132, March.
    • Handle: RePEc:eme:ijmfpp:v:9:y:2013:i:2:p:110-132
    DOI: 10.1108/17439131311307547
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    References listed on IDEAS

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    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Niamh Brennan & Jacqueline McCafferty, 1997. "Corporate Governance Practices in Irish Companies," Open Access publications 10197/2930, Research Repository, University College Dublin.
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    Cited by:

    1. Ali Amin & Ramiz ur Rehman & Rizwan Ali & Ridzwana Mohd Said, 2022. "Corporate Governance and Capital Structure: Moderating Effect of Gender Diversity," SAGE Open, , vol. 12(1), pages 21582440221, March.
    2. Anne Marie Ward & John Forker, 2017. "Financial Management Effectiveness and Board Gender Diversity in Member-Governed, Community Financial Institutions," Journal of Business Ethics, Springer, vol. 141(2), pages 351-366, March.

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