An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Rajesh K. Aggarwal
University of Minnesota

Mark E. Evans
Duke University

Dhananjay Nanda
Duke University

Abstract: We study the relation between board size and managerial incentives in non-profit firms. We present a model where board membership is granted to parties that wish to direct the manager's actions in exchange for assets that they bring within the organization, but differ in the relative value they place on the nonprofit's activities. In this setting, we show that the manager's incentives are lower than would be had the board been smaller, although the nonprofit's ability to raise funds is higher. Empirically, we find evidence consistent with our model's predictions: non-profits that pursue more objectives have larger boards, lower managerial pay-performance sensitivities and higher revenue and program spending growth rates.

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