The Effect of Financial Audits on Governance Practices: Evidence from the Nonprofit Sector

• 成果类型: Article
• 署名作者: Duguay, Raphael
• 署名单位: Yale University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2022-0525
• 发表日期: 2024
• 页码: 157-189
• 关键词: regression discontinuity designs; corporate governance; INTERNAL CONTROL; BUSINESS RISK; fees; COMMITTEE; CHOICE; BOARD; FIRMS; LITIGATION

摘要

I evaluate the effect of financial statement audits on the governance practices of nonprofit organizations. Using a regression discontinuity design that exploits revenue-based exemption thresholds, I find that financial audits cause organizations to implement governance mechanisms, such as conflict of interest policies, whistleblower policies, and formal approval of the CEO's compensation by a committee. Consistent with these governance practices curtailing managers' private benefits, I document reductions in nepotism and CEO-to-employee pay ratio. The results are more pronounced for organizations (1) whose audit is overseen by an audit committee, (2) that already have an independent board, and (3) that face high charity-level demand for oversight. Collectively, these findings shed light on how financial audits shape the governance practices of small, less sophisticated organizations like nonprofits in ways that go beyond financial statements' direct use in decision-making and contracting.