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Board composition and nonprofit conduct: Evidence from hospitals

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  • Brickley, James A.
  • Van Horn, R. Lawrence
  • Wedig, Gerard J.

Abstract

This study uses data from hospitals to test the hypothesis that management representation on nonprofit boards leads to "excessive" CEO pay, defined as compensation that exceeds the level predicted by a market wage model. We document a relatively small, but statistically significant, positive association between CEO pay and "insider" boards that include the CEO and other employees as members. Additional tests confirm that this result is not driven by endogenous board structure and that excess pay is greater in the absence of competition from for-profit hospitals. We then examine whether management board representation is associated with larger underlying agency concerns that lead to reduced donations. Our tests do not support this hypothesis but do, however, reveal a negative correlation between donations and physician representation on the board - suggesting a potential conflict between the interests of donors and non-employee physicians. Our overall evidence provides empirical support for modeling nonprofit organizations as consisting of competing stakeholders.

Suggested Citation

  • Brickley, James A. & Van Horn, R. Lawrence & Wedig, Gerard J., 2010. "Board composition and nonprofit conduct: Evidence from hospitals," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 196-208, November.
    • Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:196-208
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