Agency Theory in the Not-for-Profit Sector: Its Role at Independent Colleges

• Published in: Nonprofit and voluntary sector quarterly 2000-06, Vol.29 (2), p.280-296
• Main Author: Olson, David E.
• Format: Article
• Language: English
• Subjects: Agency; Agency theory; Boards of directors; Capital losses; Colleges & universities; Community colleges; Decision making; Managers; Nonprofit making organizations; Nonprofit organizations; Profits; Sociology; Sociology of organizations and enterprises. Bureaucracy and administration; Sociology of work and sociology of organizations; Specialization; Stockholders; Students; Theory; Universities; USA
• ISSN: 0899-7640; 1552-7395; 0899-7640
• DOI: 10.1177/0899764000292004

Agency theory has long been studied in the corporate setting and used to explain performance in management and in boards of directors. However, little has been done to extend this research into the area of not-for-profits. Using data collected from member institutions of the Council of Independent Colleges, relationships between boards of trustees and presidential demography and institutional performance were examined. Data were analyzed using panel regression with a separate panel for each year’s data and for each of the responding schools. Using revenue and gift income as dependent variables, it was found that increases in the size, average tenure, and level of business executive background on a board led to subsequent increases in performance for the institution. Diversity of the board had mixed results, whereas presidential tenure improved performance. These findings partially support the hypotheses and extend the explanatory reach of agency theory into the not-for-profit sector.