The Relationship Between Sarbanes–Oxley Policies and Donor Advisories in Nonprofit Organizations

  • Gregory D. Saxton
  • Daniel G. Neely
Original Paper


This study examines the impact of Sarbanes–Oxley (SOX) on the nonprofit sector. Focusing on three key SOX policies applicable to charities—conflict-of-interest policies, records retention policies, and whistleblower policies—this study tests the relationship between the existence and addition of these policies on subsequent ethical and governance lapses as reflected in the issuance of “donor advisories” by the large third-party ratings agency Charity Navigator. The findings suggest that, controlling for other relevant organizational factors, the three SOX-inspired written policies are related to a reduced likelihood of donor advisories in the organizations rated by Charity Navigator.


Accounting ethics Charities Nonprofits Regulation Sarbanes–Oxley 


Compliance with Ethical Standards

Conflict of interest

The authors declare that they have no conflict of interest.

Ethical Approval

This article does not contain any studies with human participants or animals performed by any of the authors.


  1. Benzing, C., Leach, E., & McGee, C. (2011). Sarbanes–Oxley and the new Form 990: Are arts and culture nonprofits ready? Nonprofit and Voluntary Sector Quarterly, 40, 1132–1147.CrossRefGoogle Scholar
  2. Board Source-Independent Sector. (2006). The SarbanesOxley Act and implications for nonprofit organizations. Washington, DC. Retrieved October 7, 2016, from
  3. Charity Navigator. (2016). CN advisories. Retrieved September 14, 2016, from
  4. Daft, R. L., & Lengel, R. H. (1986). Organizational information requirements, media richness and structural design. Management Science, 32, 554–571.CrossRefGoogle Scholar
  5. Davis, J. A. (1985). The logic of causal order. Thousand Oaks, CA: Sage.CrossRefGoogle Scholar
  6. Desai, M. A., & Yetman, R. J. (2015). Constraining managers without owners: Governance of the not-for-profit enterprise. Journal of Government & Nonprofit Accounting, 4, 53–72.CrossRefGoogle Scholar
  7. Dhole, S., Khumawala, S. B., Mishra, S., & Ranasinghe, T. (2015). Executive compensation and regulation-imposed governance: Evidence from the California Nonprofit Integrity Act of 2004. The Accounting Review, 90(2), 443–466.CrossRefGoogle Scholar
  8. Gordon, T. P., Knock, C. L., & Neely, D. G. (2009). The role of rating agencies in the market for charitable contributions: An empirical test. Journal of Accounting and Public Policy, 28, 469–484.CrossRefGoogle Scholar
  9. Grunewald, D. (2008). The Sarbanes–Oxley Act will change the governance of non profit organizations. Journal of Business Ethics, 80, 399–401.CrossRefGoogle Scholar
  10. Guidestar. (2003). The SarbanesOxley Act and implications for nonprofit organizations. Retrieved from
  11. Gujarati, D. N. (1995). Basic econometrics (3rd ed.). New York: McGraw-Hill.Google Scholar
  12. Harris, E. E., & Neely, D. G. (2016). Multiple information signals in the market for charitable donations. Contemporary Accounting Research, 33, 989–1012.CrossRefGoogle Scholar
  13. Harris, E. E., Petrovits, C., & Yetman, M. H. (2017). Why bad things happen to good organizations: The link between governance and asset diversions in public charities. Journal of Business Ethics, 146, 149–166.CrossRefGoogle Scholar
  14. Independent Sector. (2016). Scope of the nonprofit sector. Retrieved September 14, 2016, from
  15. Iyer, V. M., & Watkins, A. L. (2008). Adoption of Sarbanes–Oxley measures by nonprofit organizations: An empirical study. Accounting Horizons, 22, 255–277.CrossRefGoogle Scholar
  16. Keating, E., Parsons, L., & Roberts, A. A. (2008). Misreporting fundraising: How do nonprofit organizations account for telemarketing campaigns? The Accounting Review, 83, 417–446.CrossRefGoogle Scholar
  17. Krishnan, R., Yetman, M. H., & Yetman, R. J. (2006). Expense misreporting in nonprofit organizations. The Accounting Review, 81, 399–420.CrossRefGoogle Scholar
  18. Larcker, D. F., & Rusticus, T. O. (2010). On the use of instrumental variables in accounting research. Journal of Accounting and Economics, 49, 186–205.CrossRefGoogle Scholar
  19. Lee, Y. (2016). What encourages nonprofits’ adoption of good governance policies? Nonprofit Management and Leadership, 27, 95–112.CrossRefGoogle Scholar
  20. Lee, G., & Fargher, N. (2013). Companies’ use of whistle-blowing to detect fraud: An examination of corporate whistle-blowing policies. Journal of Business Ethics, 114, 283–295.CrossRefGoogle Scholar
  21. Marquardt, D. (1980). You should standardize the predictor variables in your regression models: Discussion of “A critique of some ridge regression methods”. Journal of the American Statistical Association, 75(369), 87–91.Google Scholar
  22. McLaughlin, T. A. (2003). For-profit spillover: New regulation of independence. Morris, NJ: NonProfit Times.Google Scholar
  23. Neely, D. G. (2011). The impact of regulation on the US nonprofit sector: Initial evidence from the Nonprofit Integrity Act of 2004. Accounting Horizons, 25(1), 107–125.CrossRefGoogle Scholar
  24. Nezhina, T. G., & Brudney, J. L. (2010). The Sarbanes–Oxley Act: More bark than bite for nonprofits. Nonprofit and Voluntary Sector Quarterly, 39, 275–301.CrossRefGoogle Scholar
  25. Nezhina, T. G., & Brudney, J. L. (2012). Unintended? The effects of adoption of the Sarbanes–Oxley Act on nonprofit organizations. Nonprofit Management and Leadership, 22, 321–346.CrossRefGoogle Scholar
  26. Ostrower, F. (2007). Nonprofit governance in the United States. Washington, DC: The Urban Institute.Google Scholar
  27. Ostrower, F., & Bobowick, M. J. (2006). Nonprofit governance and the Sarbanes–Oxley Act. Washington, DC: The Urban Institute.Google Scholar
  28. Peregrine, M. (2012). Antidote to nonprofit scandals: The Sarbanes-Oxley Act. Retrieved from
  29. Petrovits, C., Shakespeare, C., & Shih, A. (2011). The causes and consequences of internal control problems in nonprofit organizations. The Accounting Review, 86, 325–357.CrossRefGoogle Scholar
  30. Putnam, L. L., & Sorenseson, R. L. (1982). Equivocal messages in organizations. Human Communication Research, 8, 114–132.CrossRefGoogle Scholar
  31. Saxton, G. D., & Guo, C. (2011). Accountability online: Understanding the Web-based accountability practices of nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 40, 270–295.CrossRefGoogle Scholar
  32. Sunder, S. (2010). Adverse effects of uniform written reporting standards on accounting practice, education, and research. Journal of Accounting and Public Policy, 29, 99–114.CrossRefGoogle Scholar
  33. Tinkelman, D. (2009). Unintended consequences of expense ratio guidelines: The Avon breast cancer walks. Journal of Accounting and Public Policy, 28, 485–494.CrossRefGoogle Scholar
  34. Vermeer, T. E., Raghunandan, K., & Forgione, D. A. (2006). The composition of nonprofit audit committees. Accounting Horizons, 20, 75–90.CrossRefGoogle Scholar
  35. Yetman, M. H., & Yetman, R. J. (2012). The effects of governance on the accuracy of charitable expenses reported by nonprofit organizations. Contemporary Accounting Research, 29, 738–767.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Schulich School of BusinessYork UniversityTorontoCanada
  2. 2.Lubar School of BusinessUniversity of Wisconsin – MilwaukeeMilwaukeeUSA

Personalised recommendations