Agency problems and unrelated business income of non-profit organizations: an empirical analysis

Nonprofit organizations are traditionally assumed to dislike commercial activities. In the USA, they are however allowed to engage in commercial activities, but the income they derive from these activities is then subject to the so-called ‘unrelated business income tax’. If NPOs do indeed dislike commercial income, then why do they engage in these activities? Using a data set of 2103 US NPOs, this study suggests that the presence of agency problems inside the organization can at least provide an explanation for the occurrence of ‘unrelated business income’.