The Effect of Financial Audits on Governance Practices: Evidence from the Nonprofit Sector
利用收入豁免门槛的断点回归设计，发现财务审计促使非营利组织采用利益冲突政策、举报人政策等治理机制，并减少裙带关系和CEO与员工薪酬比。
ABSTRACT 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. JEL Classifications: M42; G34; M48; L31.