Aspects of corporate finance and corporate governance in the non-profit sector

Prof. Yermack will discuss recent research into the financing and governance of non-profit corporations. The use of the corporate form by non-profit businesses is puzzling, because many of the advantages that corporations enjoy in the private sector simply do not apply to non-profits. As a result, financial contraction is difficult and agency problems and inefficiency are recurring problems. The lecture will feature material from two subject areas. First, Prof Yermack will discuss executive compensation and incentives for non-profits. He will focus upon his recent paper studying the compensation and productivity of Methodist ministers in a 43-year panel date set. The results indicate that that the church uses pay-for-performance incentives for its clergy in patterns that resemble those for managers of private corporations Including intelligent adjustment for risk. Prof. Yermack will also discuss the capital raising process for non-profits, focusing upon donations and endowment management. He will review the aggressive investment strategies followed by some U.S. non-profits, the optimal role of an endowment in a non-profit’s financial structure, and the agency problems that can arise when endowments grow large. He will conclude with a review of results from his recent paper on large charitable stock donations by CEOs of public companies. This paper, the first academic study of individual charitable gifts, indicates that donors time their stock donations extraordinarily well. While this pattern is partly due to an exemption of stock gifts from inside trading regulation, further evidence suggests that some CEO donors may fraudulently backdate stock gifts to increase personal tax benefits.

David L. Yermack is the Albert Fingerhut Professor of Finance and Business Transformation at New Your University Stern School of Business. Professor Yermack teaches courses in corporate finance, restructuring firms and industries, and law and finance. He has been with NYU Stern for more than 10 years. His primary research areas include boards of directors, executive compensation, executive stock options, and law and finance. Professor Yermack has been published in many journals including Journal of Financial Economics, Journal of Finance, and Journal of Law, Economics, and Organizations. He received his Bachelor of Arts in economics, Master of Business Administration, Jurist Doctor degree, Master of Arts in business economics, and doctor of philosophy in business economics from Harvard University.