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Why Do Foundations Follow the Law?: Evidence from Adoption of the Uniform Prudent Management of Institutional Funds Act

57 Pages Posted: 12 Jul 2016 Last revised: 17 Oct 2016

Brian D. Galle

Georgetown University Law Center

Date Written: October 15, 2016

Abstract

I examine the determinants of nonprofit corporate compliance with law using a large panel of over one million firm-years, and despite the absence of many formal deterrence mechanisms, find evidence consistent with widespread compliance. I exploit rolling state adoption of the Uniform Prudent Management of Institutional Funds Acts, which lifted some existing limits on firm spending, but which applied to some but not all firms within each state. This allows the use of triple-difference estimates that control for changes in local norms and economic conditions. Interacting the triple-difference factors with other predictors of compliance, I find no correlation between compliance and enforcement intensity, but some evidence that compliance is correlated with firm culture and reliance on accountants. I argue that my findings have important implications for the governance of charitable organizations, and may speak more generally to drivers of compliance among other organizational forms.

Keywords: Private Foundation, Nonprofit, Compliance, UPMIFA

JEL Classification: H32, K42, L31, L51

Suggested Citation

Galle, Brian D., Why Do Foundations Follow the Law?: Evidence from Adoption of the Uniform Prudent Management of Institutional Funds Act (October 15, 2016). Available at SSRN: https://ssrn.com/abstract=2807631

Brian D. Galle (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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