Agency theory in the not-for-profit sector: Its role at independent colleges

Agency theory has long been studied in the corporate setting and used to ex plain performance in management and in boards of directors. However little has been done to extend this research into the area of not-for-profits. Usi ng data collected from member institutions oft he Council of Independent Co lleges, relationships between boards of trustees and presidential demograph y and institutional performance were examined. Data were analyzed using pan el regression with a separate panel for each year's data and for each of th e responding schools. Using revenue and gift income as dependent variables, it was found that increases in the size, average tenure, and level of busi ness executive background on a board led to subsequent increases in perform ance for the institution. Diversity of the board had mixed results, whereas presidential tenure improved performance. These findings partially support the hypotheses and extend the explanatory reach of agency theory into the not-for-profit sector.