Accepted by Steven Salterio. We are grateful for insightful comments from Steven Salterio and two anonymous referees. We also thank Philip Beaulieu, Chris Chapman, Dan Dhaliwal, Gail Fey, Cristi Gleason, Joanna Ho, Christo Karuna, Mina Pizzini, Bill Waller, and participants at workshops at the Imperial College in London, University of Calgary, University of Arizona, University of California at Irvine, and the Brigham Young University Accounting Research Symposium for their helpful comments. We especially thank Ranjani Krishnan, Naomi Soderstrom, and Mark Trombley for their observations and insights. Theodore Goodman acknowledges support from the University of Arizona and Fabio Gaertner acknowledges support from Nanyang Technological University.
The Influence of Ownership and Compensation Practices on Charitable Activities†
Version of Record online: 8 AUG 2014
Contemporary Accounting Research
Volume 32, Issue 1, pages 169–192, Spring 2015
How to Cite
Eldenburg, L. G., Gaertner, F. B. and Goodman, T. H. (2015), The Influence of Ownership and Compensation Practices on Charitable Activities. Contemporary Accounting Research, 32: 169–192. doi: 10.1111/1911-3846.12066
- Issue online: 12 MAR 2015
- Version of Record online: 8 AUG 2014
- Accepted manuscript online: 24 SEP 2013 09:21AM EST
- University of Arizona
- Nanyang Technological University
Recent accounting research provides evidence that similar profit-based compensation incentives are used in for-profit and nonprofit hospitals. Because charity care reduces profits, such incentives should lead for-profit hospital managers to reduce charity care levels. Nonprofit hospital managers, however, may respond differently to the same incentives because they face a different set of institutional pressures and constraints. We compare the association between pay-for-performance incentives and charity care in for-profit and nonprofit hospitals. We find a negative and significant association between charity care and our proxy for profit-based incentives in for-profit hospitals, and no significant association in nonprofit hospitals. These results suggest that linking manager pay to profitability does not appear to discourage charity care in nonprofit hospitals. Apparently, the nonprofit mission, institutional pressures, and ownership constraints moderate the potentially negative effects of profit-based incentives. Because this evidence partially alleviates concerns over nonprofit compensation arrangements that mirror those used in for-profit hospitals, it should be of interest to regulators and policymakers. In addition, this study provides insights into accounting researchers about institutional and organizational influences that affect managerial responses to financial incentives in compensation contracts.