Corporate Governance in Nonprofit Organizations: A Non-Technical Review of the Economic Literature

EMES Conferences Selected Papers Series, ECSP-B08-09
Thematic line: Management and governance of the Third Sector: Theoretical and applied approaches

The economics based theoretical and empirical literature on the governance of non-profit organizations is brought together and integrated in a way easily accessible for non-economists. This literature is scattered around in academic journals covering economics,  health economics, management, accounting, and the more non-profit geared scientific publications.

After defining corporate governance, the most appropriate microeconomic framework to study governance problems is presented in a non-technical way: the principal-agent theory.  Most of the economic literature deals with the role and influence of the board, and its relation to the organization’s management and performance. This is also reflected in the paper’s structure.

With respect to the board, its functioning, composition, and committee structure are discussed, followed by a review of the literature on incentive based remuneration schemes, disclosure of financial information, and the use of debt to mitigate agency problems between the board and management. In a following section the available literature dealing with donors and subsidizing authorities in governance relations is presented. The paper’s conclusion contains a number of practical implications of the scholarly obtained results to date, as well as some suggestions for further theoretical and empirical research.

Corporate Governance in Nonprofit Organizations: A Non-Technical Review of the Economic Literature

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