Governance and efficiency in Chinese foundations

Abstract

This study examines the impact of governance on the efficiency of nonprofit organizations and the relationship among different governance mechanisms. Using a dataset of 3496 Chinese foundations from 2011 to 2015, we find that internal governance, external donor governance, and external governance environment are significantly and positively associated with foundations’ efficiency. Importantly, substitutional relationships exist among these governance mechanisms. Financial reporting quality is a major channel through which governance influences efficiency. Furthermore, the positive association between governance and efficiency is more pronounced for small foundations than for large ones and for noneducation-focused foundations than for education-focused ones. This study offers practical guidance for foundations to improve their efficiency by enhancing both internal and external governance and will be of interest to foundation leaders, donors, and policymakers.