Community social capital and financial reporting quality in nonprofits

Abstract Based on the social norms and structural theories of social capital, our study provides evidence that the social capital of a nonprofit organisation's headquarters area has a positive and statistically significant impact on its financial reporting quality. This evidence is consistent with the social capital theory view of community social capital, which argues that social capital encourages morally acceptable behaviour, provides reputational capital, and has implications for organisations. Additionally, our study finds that community social capital is positively associated with the strength of nonprofits' governance and negatively associated with managerial opportunistic behaviour, which in turn mediates the main relationship.