The effects of accumulated wealth and corporate governance quality on nonprofit performance

Abstract

This dissertation explores the relationship between governance quality, accumulated wealth, and organizational performance in U.S. nonprofits. Accumulated wealth in nonprofits has been previously shown to reduce overall support contributions because donors perceive less need for financial resources. Further, the absence of owners leads to weaker monitoring mechanisms and greater agency problems. Despite the size of the nonprofit sector (5.5% of GDP and 9% of employment), the impact of governance in organizations with accumulated wealth has not been studied much. Using recent data on governance practices at nonprofits reported on IRS Form 990’s and structural equation modeling/partial least squares analysis, this study finds that the strength of governance practices in nonprofits reduces the negative impact of accumulated wealth in Arts, Education, Environment, Health, Higher Education, Hospitals, Human Services, International, and Religious organizations. This paper demonstrates how agency theory and stakeholder theory complement each other when the nonprofit business model has a traditional revenue structure similar to its for-profit counterpart. For practitioners, it shows that combining a strong governing body, governing policies, compensation policies, and transparency policies, helps hold management accountable. This is necessary for the more efficient and effective execution of a nonprofit’s mission.