The Sarbanes-Oxley Act and the nonprofit sector
Nezhina, Tamara G.
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The Sarbanes-Oxley Act was passed by the U.S. Congress in 2002 in the aftermath of well-publicized scandals in the for-profit world. The Act was intended to improve accountability and transparency in for-profit corporations and deter future abuses. Although SOX was not binding on nonprofit organizations, anecdotal evidence suggests widespread consideration and adoption of SOX by these organizations. However, to understand SOX adoption by the nonprofit sector, more systematic studies are needed. The goal of the study is threefold: (1) to understand the depth of penetration of SOX rules into nonprofit management and governance practices, (2) to explain the voluntary compliance of nonprofits with SOX, and, (3) to determine positive and negative effects of SOX in nonprofit organizations. This study investigates the impact of SOX on nonprofit organizations through the quantitative analysis of the original data collected by surveying the representative sample of public charity organizations. The data analysis employs Poisson and negative binomial regressions to explain SOX adoption and effects in nonprofit organizations. The study was informed by the following organizational behavior theories: (1) resource dependence theory, (2) internal determinants theory; (3) diffusion of innovation theory, and, (4) the anticipatory accountability model. These theories were chosen because they best explain the voluntary adoption of SOX by nonprofit organizations. These theories define external and internal factors that were expected to influence nonprofit leaders’ adoption decisions. This dissertation examines the unintended SOX spillover effects to the nonprofit sector, and reveals that nonprofit organizations adopt SOX differently. Although the extent of SOX adoption is not great, it is large enough to warrant scholarly attention. The results of the quantitative and qualitative analyses demonstrate that nonprofit organizations adopt SOX voluntarily and experience both positive and negative effects. The voluntary SOX adoption by nonprofits provides the evidence that the unintended SOX spillover is happening in the nonprofit sector. The theoretical and practical implications of the public policy spillover on the untargeted subjects - the universe of nonprofit organizations are discussed, and new directions for the future public policy spillover research are suggested.