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Sources of Funding and Monitoring Effects on Nonprofit Organisations from an Agency Perspective

Sources of Funding and Monitoring Effects on Nonprofit Organisations from an Agency Perspective Nonprofit Organisations NPOs receive their funding in three major types government subvention, donations and fees collected for services provided. While the contributors do not normally act as the decision agents, the potential existence of agency problem has to be dealt with. This paper investigates whether effective monitoring of principalagent relationship exists in NPOs in Hong Kong, which may be perceived to be attached to different types of funding provided to NPOs. While findings from previous studies suggest that NPOs' expense level will be low when they are subject to external monitoring, our results reveal that the expense level of NPOs is similarly associated with the type of funding. More specifically, sizeable donations induce a perception of effective external monitoring on the decision agents, which leads to the adoption of a lower expense level. On the other hand, due to the weak control that can be imposed by existing regulatory framework and disclosure requirements, government subvention and fees collected do not seem to impose any effective monitoring effects on NPOs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Review of Accounting Emerald Publishing

Sources of Funding and Monitoring Effects on Nonprofit Organisations from an Agency Perspective

Chan, Terence; Chau, Gerald; Chan, Dennis
Asian Review of Accounting , Volume 5 (2): 12 – Feb 1, 1997
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1321-7348
DOI
10.1108/eb060690
Publisher site
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Abstract

Nonprofit Organisations NPOs receive their funding in three major types government subvention, donations and fees collected for services provided. While the contributors do not normally act as the decision agents, the potential existence of agency problem has to be dealt with. This paper investigates whether effective monitoring of principalagent relationship exists in NPOs in Hong Kong, which may be perceived to be attached to different types of funding provided to NPOs. While findings from previous studies suggest that NPOs' expense level will be low when they are subject to external monitoring, our results reveal that the expense level of NPOs is similarly associated with the type of funding. More specifically, sizeable donations induce a perception of effective external monitoring on the decision agents, which leads to the adoption of a lower expense level. On the other hand, due to the weak control that can be imposed by existing regulatory framework and disclosure requirements, government subvention and fees collected do not seem to impose any effective monitoring effects on NPOs.

Journal

Asian Review of Accounting – Emerald Publishing

Published: Feb 1, 1997

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