Societal Trust and the Economic Behavior of Non-Profit Organizations
Advances in Accounting, Volume 39, pp. 21-31, December 2017, DOI: 10.1016/j.adiac.2017.09.003
42 Pages Posted: 23 Jun 2016 Last revised: 5 Apr 2018
Date Written: September 14, 2017
This study explores the impact of societal trust on the economic behavior of nonprofit organizations. Although prior studies reveal that trust has a positive impact on the economic behavior of for-profit firms, the institutional differences between the two organization types make it unclear whether trust plays a similar role in nonprofits. Our results show that nonprofits operating in higher trust areas are more likely to overspend on administrative expenses. This positive relationship between trust and overspending is primarily driven by service organizations, as opposed to public charities. Moreover, within service organizations, we find that the positive trust-administrative overspending association is most prevalent in situations of weaker monitoring or governance. Additional tests show trust has a similar impact on excess compensation and abnormal accruals in service organizations. Overall, our findings suggest that trust may provide opportunities for nonprofit managers, particularly in service-oriented organizations, to engage in opportunistic behavior that may be exacerbated by weaker forms of oversight.
Keywords: Trust, Non-Profit Organizations, Opportunistic Spending, Administrative Expense
JEL Classification: L30, M40, M41
Suggested Citation: Suggested Citation