Constraining Managers without Owners: Governance of the Not-for-Profit Enterprise
Mihir A. Desai
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
Robert J. Yetman
University of California, Davis - Graduate School of Management
In the absence of owners, how effective are the constraints imposed by the state in promoting effective firm governance? This paper develops state-level indices of governance environment facing not-for-profits and examines the effects of these rules on not-for-profit behavior. Stronger provisions aimed at detecting managerial misbehavior are associated with significantly greater charitable expenditures, increased foundation payouts and lower insider compensation. Instrumental variables analysis confirms the relationship between the governance environment and not-for-profit performance. The paper also examines how governance influences an alternative metric of not-for-profit performance - the provision of social insurance. Stronger governance measures are associated with intertemporal smoothing of resources and greater activity in response to negative economic shocks.
Number of Pages in PDF File: 47
Keywords: Not-for-Profits, corporate governance, social insurance
JEL Classification: L30, G30, G34, G38, H40, K20
Date posted: February 5, 2005
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