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

See all articles by Robert Felix

Robert Felix

Catholic University of America (CUA) - Busch School of Business and Economics

Gregory Gaynor

University of Baltimore

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Jan L. Williams

University of Baltimore

Date Written: September 14, 2017

Abstract

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

Felix, Robert and Gaynor, Gregory and Pevzner, Mikhail and Williams, Jan L., Societal Trust and the Economic Behavior of Non-Profit Organizations (September 14, 2017). Advances in Accounting, Volume 39, pp. 21-31, December 2017, DOI: 10.1016/j.adiac.2017.09.003, Available at SSRN: https://ssrn.com/abstract=2799466 or http://dx.doi.org/10.2139/ssrn.2799466

Robert Felix (Contact Author)

Catholic University of America (CUA) - Busch School of Business and Economics ( email )

620 Michigan Avenue, NE
Washington, DC 20064
United States

Gregory Gaynor

University of Baltimore ( email )

1420 N. Charles Street
Baltimore, MD 21201
United States

Mikhail Pevzner

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Jan L. Williams

University of Baltimore ( email )

Merrick School of Business
1420 N. Charles Street
Baltimore, MD 21201
United States
410.837.6593 (Phone)
410.837.5722 (Fax)

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