Hospitals with Accounting Experts On the Board Received Higher Charitable Contributions

Abstract

We empirically examined the relation between the presence of accounting experts on the board and charitable contributions received by hospitals. We hypothesized that accounting experts, with their knowledge and training in financial reporting, internal control, and risk management, are able to provide fiduciary assurance to potential donors that their contributions will be used efficiently and effectively toward the charitable mission. Hospitals with accounting experts on the board, therefore, might receive higher charitable contribution as compared with hospitals without accounting experts on the board. Using data from California nonprofit hospitals, we found robust evidence that after controlling for various board and hospital characteristics, hospitals with accounting experts on the board received 40% more charitable contributions as compared with hospitals without accounting experts on the board. More importantly, in the year when an accounting expert was added to the board, charitable contributions in the same hospital on average increased by more than $1 million; in the year when an accounting expert left the board, charitable contributions on average decreased by $0.7 million. In addition, the enhanced charitable contributions that occurred in the year when accounting experts were appointed to the board did not reverse in subsequent years, indicating a sustainable effect. These results highlight the benefits of recruiting accounting experts to serve on hospital boards. They can strengthen the board’s governance effectiveness and enhance its fiduciary assurance to donors.

Keywords: accounting expert; governance; charitable contribution; board of directors; hospital

Data Availability: Data is publicly available from the Office of Statewide Health Planning and Development (Sacramento, California), the U.S. Census Bureau, the Federal Audit Clearinghouse, and the U.S. Department of Agriculture.