The effect of board-manager agency conflicts on non-profit organisations' earnings and cost allocation manipulations

Taking into account agency problems between board and management within non-profit organisations, for the first time a comprehensive formal model of earnings manipulations is developed Both organisational earnings as well as disaggregated financial performance indicators are looked at, the last ones being affected by possible Indirect cost allocation manipulations The model takes Into consideration the impact of disclosed earnings and performance indicators on externally raised funds, and assumes risk-neutral managers In the last section, it is generalised by introducing risk-averse managers The conditions for optimal manipulation levels (from a managerial point of view) are derived Depending on the (dis) utility parameters Involved, different solutions emerge As to the agency problems, it is shown that, at least for all interior solutions, a single mechanism is at work in all the situations analysed more agency problems lead to more manipulations, both at the organisational level and the disaggregated level