Sunshine, Stakeholders, and Executive Pay: A Regression-Discontinuity Approach
Brian D. Galle
Georgetown University Law Center
David I. Walker
Boston University School of Law
December 17, 2013
Boston College Law School Legal Studies Research Paper No. 316
Boston Univ. School of Law, Public Law Research Paper No. 14-09
We evaluate the effect of highly salient disclosure of private college and university president compensation on subsequent donations using a quasi-experimental research design. Using a differences-in-discontinuities approach to compare institutions that are highlighted in the Chronicle of Higher Education’s annual "top 10" list of most highly-compensated presidents against similar others, we find that appearing on a top 10 list is associated with reduced average donations of approximately 4.5 million dollars in the first full fiscal year following disclosure, despite greater fundraising efforts at "top 10" schools. We also find some evidence that top 10 appearances slow the growth of compensation, while increasing fundraising and enrollment, in subsequent years. We interpret these results as consistent with the hypothesis that donors care about compensation and react negatively to high levels of pay, on average; but (absent highly-salient disclosures) are not fully informed about pay levels. Thus, while donors represent a potential source of monitoring and discipline with respect to executive pay in the nonprofit sector, significant agency problems remain. 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: 44
Keywords: nonprofits, charity, executive compensation, agency costs, higher education, transparency, disclosure
JEL Classification: D64, D82, G39, I20, J33, L31
Date posted: December 4, 2013 ; Last revised: November 26, 2014
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