Financial Disclosure Management by Nonprofit Organizations

46 Pages Posted: 30 Sep 2002

See all articles by Ranjani Krishnan

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems

Michelle Yetman

University of California, Davis - Graduate School of Management

Robert J. Yetman

University of California, Davis - Graduate School of Management

Date Written: July 19, 2002

Abstract

This paper examines how nonprofit organizations respond to incentives to manage their publicly available financial information. Prior research identifies two operating ratios donors commonly use to evaluate the efficiency and effectiveness of nonprofits (i.e., the program service ratio, defined as the fraction of total expenses committed to advancing the charitable mission of the organization, and the fundraising ratio, defined as the ratio of fundraising expenses to donations revenue). Nonprofit managers have an incentive to over-report the expenses classified as program services and under-report the expenses classified as administrative and fundraising in order to improve these ratios. We examine whether nonprofits respond to these incentives, and we find evidence consistent with opportunistic cost shifting to improve the program service and fundraising ratios. Additional analysis finds that smaller nonprofits that are more reliant on donations revenue manipulate their operating ratios to a greater extent.

Keywords: nonprofit organizations, earnings management, disclosure, hospitals

JEL Classification: M41, M43, M48, L31

Suggested Citation

Krishnan, Ranjani and Yetman, Michelle and Yetman, Robert, Financial Disclosure Management by Nonprofit Organizations (July 19, 2002). Available at SSRN: https://ssrn.com/abstract=319581 or http://dx.doi.org/10.2139/ssrn.319581

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)

Michelle Yetman

University of California, Davis - Graduate School of Management ( email )

128 AOB IV
One Shields Avenue
Davis, CA 95616
United States
530-754-7808 (Phone)
530-752-2924 (Fax)

Robert Yetman (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

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