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Do nonprofits manipulate investment returns?

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  • Almond, Douglas
  • Xia, Xing

Abstract

We provide evidence that nonprofit organizations manipulate reported investment returns to avoid investment losses. We find a sharp discontinuity around zero in cross-sectional distribution of the rates of return on investments for tax-exempt organizations: rates of return are significantly more likely to be slightly positive than slightly negative. This pattern is found for a wide range of nonprofit missions, including religious related charities and community improvement organizations.

Suggested Citation

  • Almond, Douglas & Xia, Xing, 2017. "Do nonprofits manipulate investment returns?," Economics Letters, Elsevier, vol. 155(C), pages 62-66.
    • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:62-66
    DOI: 10.1016/j.econlet.2017.03.014
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    References listed on IDEAS

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    1. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    2. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    3. Nicolas P.B. Bollen & Veronika K. Pool, 2009. "Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution," Journal of Finance, American Finance Association, vol. 64(5), pages 2257-2288, October.
    4. Joseph J. Cordes & Burton A. Weisbrod, "undated". "Differential Taxation of Nonprofits and the Commercialization of Nonprofit Revenues," IPR working papers 97-15, Institute for Policy Resarch at Northwestern University.
    5. Daniel Bergstresser & Mihir Desai & Joshua Rauh, 2006. "Earnings Manipulation, Pension Assumptions, and Managerial Investment Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 157-195.
    6. Hofmann, Mary Ann & McSwain, Dwayne, 2013. "Financial disclosure management in the nonprofit sector: A framework for past and future research," Journal of Accounting Literature, Elsevier, vol. 32(1), pages 61-87.
    7. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
    8. Eric Zitzewitz, 2012. "Forensic Economics," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 731-769, September.
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    Cited by:

    1. James Alm & Daniel Teles, 2018. "State and federal tax policy toward nonprofit organizations," Chapters, in: Bruce A. Seaman & Dennis R. Young (ed.), Handbook of Research on Nonprofit Economics and Management, chapter 19, pages 370-385, Edward Elgar Publishing.
    2. Dang, Canh Thien & Owens, Trudy, 2020. "Does transparency come at the cost of charitable services? Evidence from investigating British charities," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 314-343.

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    More about this item

    Keywords

    Nonprofit organization; Investment returns; Financial statement manipulation;
    All these keywords.

    JEL classification:

    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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