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Nonprofit Executive Pay as an Agency Problem: Evidence from U.S. Colleges and Universities


Brian D. Galle


Boston College Law School

David I. Walker


Boston University School of Law

August 1, 2013

Boston Univ. School of Law, Law and Economics Research Paper No. 12-57
Boston College Law School Legal Studies Research Paper No. 279

Abstract:     
We analyze the determinants of the compensation of private college and university presidents from 1999 through 2007. We find that the fraction of institutional revenue derived from current donations is negatively associated with compensation and that presidents of religiously-affiliated institutions receive lower levels of compensation. Looking at the determinants of contributions, we find a negative association between presidential pay and subsequent donations. We interpret these results as consistent with the hypotheses that donors to nonprofits are sensitive to executive pay and that stakeholder outrage plays a role in constraining that pay. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.

Number of Pages in PDF File: 51

Keywords: executive compensation, managerial power, agency costs, universities, higher education, 501(c)(3), nonprofits, private inurement, warm glow compensation

JEL Classification: G30, H25, I29, J33, K22, K34, L31

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Date posted: December 11, 2012 ; Last revised: August 2, 2013

Suggested Citation

Galle, Brian D. and Walker, David I., Nonprofit Executive Pay as an Agency Problem: Evidence from U.S. Colleges and Universities (August 1, 2013). Boston Univ. School of Law, Law and Economics Research Paper No. 12-57; Boston College Law School Legal Studies Research Paper No. 279. Available at SSRN: http://ssrn.com/abstract=2187979 or http://dx.doi.org/10.2139/ssrn.2187979

Contact Information

Brian D. Galle (Contact Author)
Boston College Law School ( email )
885 Centre Street
Newton, MA 02459-1163
United States
David I. Walker
Boston University School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
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