Do nonprofits manipulate investment returns?

Almond, Douglas; Xia, Xing

doi:10.1016/j.econlet.2017.03.014

Cited by 8 publications

(8 citation statements)

References 9 publications

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“…Notable examples of these studies include Almond and Xia (2017) showing that some US non-profits manipulate investment returns around zero to avoid revealing negative outcomes. Other studies look at misreporting in programme ratios (Trussel, 2003), the levels of social benefits (Vansant, 2016), cost-shifting (Krishnan and Yetman, 2011); or fundraising and administrative expenses (Yetman and Yetman, 2012).…”

Section: The Authorsmentioning

confidence: 99%

“…8 These measures have inherent drawbacks such as correlations with the underlying organisation and manager characteristics (see Amiram et al, 2015), or the confounding effect of scaling, sample selection and research designs (see Durtschi et al, 2005;Gilliam et al, 2015 for the discontinuity approach). These methods are only feasible when detailed records (like the US's IRS forms for non-profits used in Almond and Xia, 2017) or lookingforward information (as in studies using corporate data) are available. Due to this data unavailability, non-profit studies are often only able to look at several categories of financial records instead of the data as a whole.…”

Section: Forensic Economics Studies and Benford's Lawmentioning

confidence: 99%

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Does transparency come at the cost of charitable services? Evidence from investigating British charities

Dang

Owens

2020

Journal of Economic Behavior & Organization

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Section: The Authorsmentioning

confidence: 99%

Section: Forensic Economics Studies and Benford's Lawmentioning

confidence: 99%

Does transparency come at the cost of charitable services? Evidence from investigating British charities

Dang

Owens

2020

Journal of Economic Behavior & Organization

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“…Intuitively, a McCrary test assesses whether there are about the same number of observations above a threshold value as below that threshold, as would be expected by chance, or whether there is statistically unusual “bunching” of results on one side of the threshold. The McCrary test also has been used to suggest the presence of manipulation in a variety of settings where actors have an incentive to misreport in order to secure economic benefits, including procurement contracts (Palguta and Pertold 2017 ), agricultural production (Zhang et al 2019 ), and endowment returns (Almond and Xia 2017 ). Analyses use the DCdensity function in the R (R Core Team 2020 ) programming language’s rdd library (Dimmery 2016 ) with default bandwidth selection (McCrary 2008 ).…”

Section: Methodsmentioning

confidence: 99%

The frequency distribution of reported THC concentrations of legal cannabis flower products increases discontinuously around the 20% THC threshold in Nevada and Washington state

Zoorob

2021

J Cannabis Res

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Background Cannabis laboratory testing reliability is a scientific and policy challenge in US states with legal cannabis. Greater reported THC concentration yields higher prices, and media reports describe a well-known consumer and dispensary preference for flower products containing a minimum 20% THC content—an economically meaningful but biologically arbitrary threshold. This paper examines the frequency distribution of reported THC concentration in legal cannabis flower products in Nevada and Washington state for unusual shifts around the 20% threshold suggestive of potential manipulation of reported THC results. Methods THC concentration test results for 142,000 Chemotype 1 flower products from Washington state between June 2014 and May 2017 and 55,000 flower products from Nevada between December 2017 and January 2020 were analyzed for changes in the frequency distribution around the 20% threshold using the McCrary density test. Analyses were performed among all labs in each state, the highest volume lab in Washington, and two labs in Washington which had their licenses suspended for testing irregularities during the study period. Results Comparing just above the 20% THC threshold with just below it, the frequency of test results increased by about 43% in Nevada (z = 15.6, p < 0.001) and by about 17% in Washington (z = 11.0, p < 0.001). In Washington’s highest volume testing lab, frequency increased by only about 1% (z = 0.39, p = 0.70), while it increased by about 47% (z = 12.7, p < 0.001) among the two suspended labs. Subset to those growers which sent products to both sets of labs, frequency of flower products just above the 20% threshold increased by 2% in Washington’s largest lab (z = 0.50, p = 0.62) and by 52% among the two suspended labs (z = 12.8, p < 0.001). Discussion There is a statistically unusual spike in the frequency of products reporting just higher than 20% THC in both states consistent with economic incentives for products to contain at least 20% THC. This “bunching” of reported THC levels exists among some, but not all, cannabis testing labs, suggesting that laboratory differences (rather than precise manipulation by growers) drive this potential manipulation in reported THC content. These findings elaborate on prior research highlighting unexplained interlaboratory variation in cannabis testing results and highlight ongoing irregularities with legal cannabis testing. Conclusion These findings highlight the need for industry oversight and cautions researchers working with reported cannabis THC concentration data, which may be biased by economic incentives to report higher THC.

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“…We note that this equation relies on the Form 990 inputs being reasonably accurate. Galle () and Almond and Xia () found evidence of investment return manipulation in some nonprofit organizations (but not exclusively foundations). Furthermore, Hooke and Yook () found evidence of private equity fund smoothing of their year‐to‐year investment returns, principally through the fund general partners' (GPs) mark‐to‐market flexibility on the value of the PE funds' unsold portfolio companies.…”

Section: Methodology and Data Generationmentioning

confidence: 99%

Top foundations' 10‐year plunge into alternatives yields mixed results and high fees

Hooke

Yook

Chu

2018

Nonprofit Mgmnt & Ldrshp

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Private foundations control a sizable pool of investment capital. This paper examines the endowment returns of private foundations. Over the 10‐year period, 2006–2015, the top 56 of these organizations fully embraced the “Yale model” of portfolio construction. As a group, they substantially cut allocations to publicly traded stocks and bonds in favor of illiquid alternatives that supposedly offered higher returns and lower volatility. Despite pursuing risky investments in illiquid alternative assets, our study concludes that the foundations were not “paid” for illiquidity in terms of a meaningfully return premium (vs. public markets). Moreover, their annual return volatility, or risk, was similar to either a 60–40 composite index portfolio or a typical public pension plan, both of which had lower equity‐type exposure and greater liquidity. The implication is that foundations can achieve the same returns with better liquidity and/or lower risk with passive investments in broad index mutual funds or similar vehicles. In addition, we estimate the third‐party money management fees of the top foundations to equal 1.43% of the assets for the fiscal year 2016. This 1.43% is a sizable number when compared to the 5% of assets (including overhead expenses) that the federal government requires that foundations distribute each year in furtherance of their charitable missions.

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Do nonprofits manipulate investment returns?

Cited by 8 publications

References 9 publications

Does transparency come at the cost of charitable services? Evidence from investigating British charities

Does transparency come at the cost of charitable services? Evidence from investigating British charities

The frequency distribution of reported THC concentrations of legal cannabis flower products increases discontinuously around the 20% THC threshold in Nevada and Washington state

Top foundations' 10‐year plunge into alternatives yields mixed results and high fees

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