Abstract

Board independence—the proportion of board members “with no personal or professional relationship to the firm or firm management” (Daily & Dalton, 1993: 69)—has been a salient and enduring facet of organizational research for decades. Building upon agency theory precepts, scholars have generally argued for a positive effect of board independence on executive monitoring and firm performance. However, the vast majority of work on board independence resides within the context of large and well-established for-profit organizations. We study the effect of board independence on performance within nonprofit organizations. Notably, since nonprofits do not have shareholders, they are technically “owned” by Society and the notion of principal is ill defined. Thus, the agency theory assumption that agents report to principals and act in favor of their interests does not hold. Yet, we expect that when an independent board emerges to monitor the agent, agency costs decrease and the survival rate of the organization increases. Further, we expect that social entrepreneurship—the degree to which nonprofits engage in the sale of goods and services (Gras & Mendoza-Abarca, forthcoming)—will positively moderate this relationship.

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