Contemporary Accounting Research Vol. 25 No. 3 (Fall 2008) pp. 739–72 © CAAA doi:10.1506/car.25.3.4 The Influence of Ownership on Accounting Information Expenditures* LESLIE G. ELDENBURG, University of Arizona RANJANI KRISHNAN, Michigan State University 1. Introduction This paper examines the relationship among ownership, incentive contracting, and expenditures on accounting information systems. Combining insights from agency and institutional theories, we posit that the relationship between incentive contracting and the demand for specific types of accounting information varies as a function of ownership. Whereas in some types of organizations, incentive contracting is asso- ciated with expenditures on accounting information to facilitate decision making, in other types of organizations, accounting information is used to gain legitimacy with funding agencies and stakeholders. Furthermore, we also demonstrate that when incentive contracting is associated with an increase in expenditures on accounting information, the type of accounting information demanded varies as a function of ownership and the resulting institutional constraints. For example, for- profit hospitals have fewer institutional constraints on their collection policies and are therefore likely to invest in patient billing and collection activities to improve operations. Alternatively, nonprofit hospitals invest in general accounting activities to focus on cost reduction and efficiency improvement strategies because they face institutional constraints prohibiting aggressive collection policies. We develop arguments about the emphasis that organizations with different ownership place on incentive compensation, and how this influences expenditures on accounting. For example, for-profit and nongovernmental nonprofit organiza- tions have appointed boards, private board meetings, and fewer constraints when contracting with managers. Individual stakeholders have limited interest vested in the organization, thereby diminishing incentives to directly monitor managers. Therefore, these “privately governed” organizations are likely to tie managerial compensation to firm performance to align the interests of managers and owners. When incentive pay is used, an improvement in organizational performance also increases managers’ compensation. Consequently, they are more likely to use * Accepted by Jeffrey Callen. The authors would like to thank David Benjamin, Ellen Waxenberg, and Rachel Kaygen for their helpful insights about county hospitals in California. We are grateful for comments from associate editor Jeffrey Callen, two anonymous reviewers, Jerry Zimmerman and participants at the conference on the Organizational Economics of Health Care, University of Rochester, and research workshops at the University of Colorado at Boulder, Emory University, University of Houston, University of Illinois at Urbana-Champaign, Rice University, and Texas A & M University. Data used in this study are publicly available from the Office of Statewide Health Planning and Development, California.