Public Subsidization Versus Private Donations: A Study of Incentives and Operational Performance

UA Accounting Department Working Paper No. 00-5

33 Pages Posted: 27 Dec 2000

See all articles by Leslie Eldenburg

Leslie Eldenburg

University of Arizona

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems

Date Written: November 2000

Abstract

This study uses a hospital setting to explore incentives and performance in organizations that are subsidized by taxes and governed by elected boards of directors. This governance system introduces incentives to over-monitor CEO performance, constraining administrative decision-making and leading to poor performance. Using data from California Hospitals for the period 1980-1998, we compare municipal district hospitals to a sample of non-profit hospitals. While district hospitals' charges are lower, their subsidies and donations are larger. Overall, we find that district hospitals have lower operating margins that deteriorate more rapidly in a difficult business environment and lower compensation for CEOs.

Keywords: Tax subsidization, Public monitoring, Operational performance

JEL Classification: G34, I18, M41, M46, L31, L32

Suggested Citation

Eldenburg, Leslie G. and Krishnan, Ranjani, Public Subsidization Versus Private Donations: A Study of Incentives and Operational Performance (November 2000). UA Accounting Department Working Paper No. 00-5. Available at SSRN: https://ssrn.com/abstract=254754 or http://dx.doi.org/10.2139/ssrn.254754

Leslie G. Eldenburg (Contact Author)

University of Arizona ( email )

McClelland Hall Room 301H
Tucson, AZ 85721
United States
520-621-4585 (Phone)
520-621-3742 (Fax)

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-353-4687 (Phone)
517-432-1101 (Fax)

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