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Service Delivery Under Pressure: The Effect of Donor-Imposed Financial Restrictions
Abstract
Nonprofits continue to be faced with the pressure to succeed under financial restrictions. While donors assert that financial restrictions help nonprofit service delivery, nonprofit professionals claim that financial restrictions hinder service delivery. Applying both principal-agent and resource dependence theories, this study tests competing hypotheses to understand whether donor-imposed financial restrictions help or hinder nonprofit service delivery. Using a sample of national arts and culture nonprofits in the United States from 2011 to 2018, our results indicate a negative relationship between financial restrictions and program outputs. We find that donor-imposed financial restrictions hinder nonprofit service delivery. We also find that the relationship turns more negative when financial restrictions are mostly derived from permanently restricted donations. The findings challenge the donors’ view that imposing restrictions on donations ensures that nonprofits will further their missions. This study extends prior research by focusing on program outputs rather than financial performance, while also having theoretical implications for scholars and practical implications for both nonprofit and public managers, and donors.
Despite concerns raised by some scholars, recent publications have demonstrated that commercialization brings multiple benefits to nonprofits. However, while discussion of the positive effect of commercialization on nonprofit efficiency is on the rise in the literature, very few studies have empirically assessed the relationship. This study fills this gap by examining whether commercialization contributes to greater nonprofit efficiency and under what conditions this effect is more likely. Using fixed effects models with 2008–2018 data, the results from this study indicate that commercialization contributes to nonprofit efficiency in the performing arts subsector. Moreover, findings suggest that the relationship is more positive when performing arts nonprofits receive less government funding. The study concludes with implications for research and practice.
This article examines whether a nonprofit’s reliance on staff and volunteers is associated with its program needs or its managerial preparedness to manage these human resources, or some combination thereof. Using the Statistics of Income (SOI) data sets provided by the National Center for Charitable Statistics (NCCS), we find that both a nonprofit’s purpose to deliver services and managerial preparedness within a nonprofit to be significantly associated with an increase in number of staff and volunteers; in addition, the association between the surge in program needs and the increase in number of staff and volunteers can be conditioned by the managerial preparedness of an organization. The findings underscore the need for nonprofit organizations and their donors, especially governments and foundations, to make deliberate efforts to ensure organizational readiness and the ability to manage and sustain the supply of human resources.
Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions. This study provides new evidence and suggests possible solutions to break the starvation cycle. Drawing on agency theory, this study adopts a between-subject experimental design to test two strategies for nonprofits with high overhead that seek to overcome donors' overhead aversion. The results suggest that donors are indeed troubled by high overhead ratios. However, charitable contributions to high-overhead nonprofits could be significantly increased if the nonprofits provide information regarding their organization’s performance and transparency. The study contributes to the literature in two ways: It analyzes the starvation cycle from the donors' perspective rather than nonprofits' perspective, and it tests proactive strategies in response to overhead aversion. This study concludes that breaking the nonprofit starvation cycle could begin with nonprofits taking a more open and direct stance when confronting the issue of overhead aversion.
A number of studies have shown that arts and cultural programs offer multifarious benefits to individuals and communities. However, there has been little discussion in the public management literature regarding access to cultural programs for people with limited disposable income. Although the arts industry is increasingly emphasizing the importance of expanding cultural access for all, we know little about what drives individual nonprofit organizations’ strategies. This article draws on benefits theory and resource dependence theory to explore the relationships between different types of revenue and the extent to which performing arts nonprofits offer free access. The authors use a unique data set compiled by DataArts to test how various types of revenue influence accessibility to the arts and find that performing arts nonprofits receiving grants from local governments, foundations, and corporations offer more free access. The article concludes with a discussion of study implications and an application of benefits theory to other types of nonprofits.
I study “donor governance,” which occurs when contributors to nonprofit firms place restrictions on their gifts to limit the discretion of managers. In a study of US art museums, I find that this practice has grown significantly in recent years, and it represents the largest source of permanent capital in the industry. When donor restrictions are strong, museums shift their cost structures away from administration and toward program services, and they exhibit very high savings rates, retaining in their endowments 45 cents of each incremental dollar donated. Retention rates are near zero for cash generated from other activities. Restricted donations appear to stabilize nonprofits and significantly influence their activities, but they reduce management flexibility and may contribute to lower profit margins. Rising donor governance in US art museums may represent a reaction by contributors to the industry’s high rates of financial distress, weak boards of trustees, and large private benefits of control enjoyed by managers.
In this exploratory study, we examine whether organizational mission statement attributes make a difference to the performance of nonprofit performing arts organizations. We use text analysis to measure two semantic attributes—activity and commonality—of mission statements. We examine whether these attributes are associated with improved performance for the instrumental and expressive functions of nonprofit performing arts organizations. Our findings indicate that the mission statement attribute activity is associated with improved performance for both instrumental and expressive functions. Our analysis of nonfindings for the mission statement attribute commonality suggests that there is a need to develop and use content analysis tools tailored to nonprofit contexts.
This brief is the first of two that summarize results from detailed case studies of the financial management of nine nonprofit organizations. It focuses on the relationship between spending on administration and fundraising and the effectiveness of nonprofit organizations in carrying out their missions. Smaller organizations tended to invest less in organizational infrastructure, resulting in conditions that compromised their effectiveness. Part of the reason why these organizations invested less in infrastructure involved their reliance on grants with limits on how much could be spent on overhead costs. The overhead cost project is a collaboration with the Center on Philanthropy at Indiana University.
Financial measures are routinely used as a proxy for nonprofit organizations' capacity to serve, but the link between financial indicators and program outcomes has been largely unexamined. This study examines empirically whether, and to what extent, financial measures predict program success. The analysis draws on a unique data set from the Cultural Data Project (2004-2012) that covers nearly 5,000 nonprofit arts and cultural organizations. The empirical results confirm that financial attributes are indeed linked to program outcomes. Yet, some of the factors that contribute to financial stability and efficiency have no or negative relationships with program outcomes; this finding suggests that some efforts to maintain financial strength may be made at the expense of program performance. This study also draws attention to the inconsistent way revenue diversification is being measured and calls attention to the value in focusing on the primary funding mechanism of a nonprofit organization.
Selection bias is well known to affect surveys and epidemiological studies. There have been numerous methods proposed to reduce its effects, so many that researchers may be unclear which
method is most suitable for their study; the wide choice may even deter some researchers, for fear
of choosing a sub-optimal approach. We propose a straightforward tool to inform researchers of
the most promising methods available to reduce selection bias and to assist the search for an appropriate method given their study design and details. We demonstrate the tool using three examples where selection bias may occur; the tool quickly eliminates inappropriate methods and
guides the researcher towards those to consider implementing. If more studies consider selection
bias and adopt methods to reduce it, valuable time and resources will be saved, and should lead to
more focused research towards disease prevention or cure.
We address the impact of financial flexibility on organizational performance in a not-for-profit (NFP) setting. Specifically, we examine the link between donorimposed financial inflexibility and subsequent donations. Donors sometimes impose restrictions on NFP use of the donated resources. These restrictions arise because of donors’ preferences regarding how the assets are used, or as a mechanism for donors to monitor the actions of NFP management. Restricted donations cause financial inflexibility and limit managerial discretion. We examine the costs and benefits of restricting managerial discretion and find a negative relation between future donations and high levels of donor restriction. Specifically, we empirically demonstrate that when restricted assets comprise a high percentage of total assets, additional increases in restricted assets are associated with an overall reduction in future donations.
Donors tend to avoid charities that dedicate a high percentage of expenses to administrative and fundraising costs, limiting the ability of nonprofits to be effective. We propose a solution to this problem: Use donations from major philanthropists to cover overhead expenses and offer potential donors an overhead-free donation opportunity. A laboratory experiment testing this solution confirms that donations decrease when overhead increases, but only when donors pay for overhead themselves. In a field experiment with 40,000 potential donors, we compared the overhead-free solution with other common uses of initial donations. Consistent with prior research, informing donors that seed money has already been raised increases donations, as does a $1:$1 matching campaign. Our main result, however, clearly shows that informing potential donors that overhead costs are covered by an initial donation significantly increases the donation rate by 80% (or 94%) and total donations by 75% (or 89%) compared with the seed (or matching) approach.
Whether accounting measures of administrative efficiency affect donations is an important issue for nonprofit managers. Prior research is inconclusive. Some studies find a significant negative relation, whereas others find no significant relation. The authors investigate a variety of reasons for the prior divergent results. The evidence is consistent with donors reducing contributions to organizations reporting higher administrative expense ratios when the ratios are presumably most relevant and reliable. The authors suggest that certain prior studies failed to find significant associations largely because their samples contained many organizations for which the administrative ratios were unreliable or not helpful for donor needs. Model specification issues also affect prior studies but are less critical than sample composition. When the authors replicate prior studies on samples containing established, donation-dependent organizations with nontrivial amounts of fund-raising and administrative expenses, they generally detect a significant negative association.
Philanthropic funders play an important role in human services--they support policy research and community services--but little is known about how they structure their funding or select grant recipients. Using personal interviews with Chicago-area foundation officials, this article documents how four types of philanthropic funders approach these decisions. The article shows that the grant process is constrained by how funders obtain their resources and govern themselves. It is also constrained by ongoing relationships between funders and grant recipients, reflecting pervasive task ambiguity and weakly institutionalized norms. The result is a grant award system that resembles a two-stage competitive process.
The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2008, the phenomenon has been referenced several times, but seldom explored empirically; this study utilizes twenty-five years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in overhead costs, reflecting a deep cut in administrative expenses partially offset by an increasing in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in overhead occurring when revenues equal $100 thousand, but diminishing at $550 thousand. Finally, the brunt of the cuts have fallen on non-executive staff wages and professional fees, which heighten the concern of ill effects from a fixation on overhead cost reduction.
In the past decade, nonprofits scholars have given increased attention to the topic of vulnerability and organizational demise. An early contribution to this literature was Tuckman and Chang’s elaboration of four financial ratios that they believe could be used to predict financial vulnerability. These measures have largely escaped empirical tests. This research note describes a test of the Tuckman-Chang financial vulnerability measures among a population of nonprofit arts organizations. The article concludes that although the Tuckman-Chang measures do not have utility for all types of arts nonprofits, the measures nonetheless show substantial promise for predicting the closure of some nonprofit organizations.
Donors' ability to attach strings to their contributions has become increasingly prevalent in the nonprofit sector. Using the case of workplace charity, this article examines the determinants of nonprofit organizations' adoption of donor choice as a mode of fund-raising. Drawing from a nationwide survey, it tests three competing tenets to explain United Ways' implementation of donor choice. Employing logistic regression analysis, the findings indicate that United Ways allow for donor control when facing donors' demands for choice, regardless of the composition of the local market or fund-raisers' organizational characteristics.
This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions. This positive effect of diversification on revenue stability implies that a diversified portfolio encourages more stable revenues and consequently could promote greater organizational longevity. Despite any additional complexity or crowding out, nonprofit managers may increase the financial stability of their organizations by adding additional revenue streams. However, our analysis also reveals several other important factors that contribute to nonprofit revenue stability. In particular, increasing a nonprofit organization's total expenses and fund balance reduces volatility, suggesting larger nonprofits and organizations with greater growth potential experience greater revenue stability. Finally, the results suggest nonprofits relying primarily on contributions will experience more volatility, whereas nonprofits located within urban areas will have more stable revenue structures over time.
Standard economic theories of nonprofits argue that donors largely cannot observe nonprofit performance. Using market data from the US nonprofit housing sector, federal financial data, and rare internal production reports, this study examines the effects of nonprofit performance on donations with a dynamic panel model. Donors in our sample are only weakly sensitive to indicators of nonprofit productivity. Our results imply that nonprofit performance theory might be distinct from other sectors in that nonprofits cannot expect increased performance to be meaningfully rewarded with funding.
In the study and practice of public administration, it is often assumed that higher levels of budgetary support for non‐program expenses, such as administrator salaries, accounting, grant writing, and marketing, are evidence of inefficiency and wasteful spending. As such, grant makers and researchers often use the ratio of organizations’ administrative‐to‐total costs to measure the efficiency of public services. While this perspective has some validity, it also significantly minimizes the effect of administrative functions on the sustainability, an important aspect of long‐term performance in public service organizations. We use standardized cost data from a fourteen‐year panel of approximately 3,000 nonprofit nursing homes and find an inverted U‐shaped relationship between administrative cost ratios and financial sustainability, which suggests a “sweet spot” in the level of administrative support that tends to promote organizational sustainability. This sweet spot occurs when administrative costs are about 40 percent of total organizational costs.
The nonprofit starvation cycle describes a phenomenon in which nonprofit organizations continuously underinvest in their organizational infrastructure in response to external expectations for low overhead expenditure. In this study, we draw on nonprofit financial data from 2006 to 2015 to investigate whether the German nonprofit sector is affected by this phenomenon, specifically in the form of falling overhead ratios over time. We find reported overhead ratios to have significantly decreased among organizations without government funding and that the decrease originates from cuts in fundraising expenses—two results that are in contrast to previous findings from the U.S. nonprofit sector. With this study, we contribute to nonprofit literature by engaging in a discussion around the starvation cycle’s generalizability across contexts.
Nonprofits continue to be faced with financial challenges to fulfill their missions. Both the academic literature and nonprofit practitioners have explored revenue diversification and concentration strategies to meet these challenges. While these two strategies are essentially antagonistic, both have received support as being viable strategies to create better outcomes for the organization. This article examines whether revenue diversification or concentration strategies lead to greater mission outputs in a nonprofit context. Using resource dependence theory as a guiding framework, two opposing hypotheses are tested to gain more insight into the diversification versus concentration dilemma. A unique dataset is built and utilized to estimate a zero-inflated negative binomial regression model to assess the correlation between revenue diversification and mission outputs. Results indicate that revenue diversification (and not concentration) is associated with an increase in organizational outputs.
This study reviews the influence of revenue stream diversification on financial health. It is a meta-analysis of previous studies that have studied the relationship. This literature variously demonstrates that nonprofit financial health is improved, not influenced or harmed by diversifying reliance on different revenue streams. Our analysis of 40 original studies reporting 296 statistical effects demonstrates a small,
positive, yet statistically significant association between revenue diversification and nonprofit financial health. In addition, we show that granularity of measurement of revenue diversification influences effect size, that this effect has shifted over time, and that studies on U.S. nonprofits demonstrate weaker (or more negative) effects. However, few other prominent suspects, including diversity of financial health measure or methodology choices, explain variations in effects across the literature on revenue diversification. Overall, the study supports the contention that both analysts and practitioners should make strategic considerations that have generally escaped scholarship on revenue diversification or shift attention to revenue optimization considerations that have been raised by portfolio theory.
Nonprofit organizations (NPOs) rely on multiple funding sources to meet organizational needs; and, heavy reliance on any one revenue source can limit an NPO’s ability to allocate funding. As such, in this study, we examine the association between funding source and spending behavior in a national sample of NPOs from 2008 to 2012. Our sample consists of 51,812 observations from 16,035 unique NPOs. Using Tobit maximum likelihood estimation, we find that NPOs that rely on, both, restricted and nonrestricted revenue sources are more limited in their ability to spend on administrative needs, whereas donation income restricts personnel spending of compensation. Revenue diversification, though, can help NPOs overcome this limitation and can provide NPOs with greater spending flexibility. Our findings also show, however, that these results differ for NPO hospitals and universities.
Longitudinal cohort studies can provide important evidence about preventable causes of disease, but the success relies heavily on the commitment of their participants, both at recruitment and during follow-up. Initial participation rates have decreased in recent decades as have willingness to participate in subsequent follow-ups. It is important to examine how such selection affects the validity of the results. In this article, we described the conceptual framework for selection bias due to non-participation and loss to follow-up in cohort studies, using both a traditional epidemiological approach and directed acyclic graphs (DAGs). Methods to quantify selection bias are introduced together with analytical strategies to adjust for the bias including controlling for covariates associated with selection, inverse probability weighting, and bias analysis. We used several studies conducted in the Danish National Birth Cohort (DNBC) as examples on how to quantify selection bias and also understand the underlying selection mechanisms. Although women who chose to participate in the cohort were typically of higher social status, healthier and with less disease than all those eligible for study, differential selection was modest and the influence of selection bias on several selected exposure-outcome associations was limited. These findings are assuring and support enrolling a subset of motivated participants who would engage in long-term follow-up rather than prioritize representativeness. Some of the presented methods are applicable even with limited data on non-participants and those lost to follow-up, and can also be applied to other study designs such as case-control studies and surveys. This article is protected by copyright. All rights reserved.
Considerable research examines the impact of nonprofit organizational characteristics on charitable giving. Unresolved questions remain, however, about the impact of specific revenue sources on charitable giving, and whether or not organizational characteristics affect various categories of private donations in different ways. This study addresses these questions utilizing an empirical model of organizational-level determinants of charitable giving that includes new revenue sources, and that examines the impact of government revenue in a more nuanced way. We also disaggregate charitable giving in arts and culture nonprofits into specific sources: individuals, trustees, corporations, and foundations. Using a large database of arts and cultural nonprofits and generalized least squares analyses, we offer a new contribution by illustrating the impact of additional organizational characteristics on charitable giving, and by empirically testing the established framework with the addition of new elements. Findings allow arts and culture nonprofits to make more informed fundraising decisions.
Philanthropic funders play an important role in human services—they support policy research and community services—but little is known about how they structure their funding or select grant recipients. Using personal interviews with Chicago-area foundation officials, this article documents how four types of philanthropic funders approach these decisions. The article shows that the grant process is constrained by how funders obtain their resources and govern themselves. It is also constrained by ongoing relationships between funders and grant recipients, reflecting pervasive task ambiguity and weakly institutionalized norms. The result is a grant award system that resembles a two-stage competitive process.
The DataArts dataset, although it covers mostly arts organizations, has emerged as an alternative source of data for nonprofit research. Most existing studies use the IRS 990 data, which is considered a reliable source for research. We evaluate the reliability of the DataArts dataset by comparing the consistency of the values reported to the DataArts Cultural Data Profile (CDP) and to the 990 forms. We: 1) examine correlations between the same measures in each dataset, 2) assess the cumulative distribution of differences between the two datasets and 3) compare the results of the same empirical model conducted with the DataArts dataset and 990 data, respectively. We conclude that the DataArts dataset is an adequate and reliable source of financial and performance information, but researchers should be aware of a few limitations.
Nonprofits rely on earned revenue to remain sustainable. Prior studies have generally aggregated all earned revenue and evaluated its influence on financial sustainability. Our study takes a different approach, assessing the effects of three different types of earned revenue on an immediate program outcome. We use Cultural Data Project data from 2,000 arts and culture nonprofits from 2004-2012. We find that embedded and integrated earned revenue are linked to better program outcomes while external earned revenue is related to poorer program outcomes. Results depend on type (performing vs. visual arts) and funding structure (donative vs. commercial).
In recent years, managers of non-profit organizations are facing increasing external pressure to measure results and demonstrate that their organizations are adding real value to society by enriching the lives of both the individuals and communities they serve. However, we know little about the relationship between how nonprofit organizations perform and their ability to attract donations. Do donors value an organization’s measures of success and use that information in their donor decisions? We find that organizations that are more successful in attracting larger audiences to their programs and more visitors to their websites receive fewer contributions compared to other similar organizations. In addition, greater fundraising efficiency by organizations has a positive impact on charitable contributions. These results reiterate the need for further research on the dynamic relationship between performance outcomes and charitable giving.
Building on the impressive body of research on issues of nonprofit revenue choice and mix, this research empirically tests Foster and Fine’s claim that revenue concentration contributes to the growth of nonprofit organizations. Using National Center for Charitable Statistics (NCCS) digitized data (1998-2003), the authors test whether revenue concentration is a viable revenue-generating strategy that can help bolster a nonprofit’s financial capacity. Overall, study findings refute the mythology of revenue diversification; the authors find that implementing a revenue concentration strategy generates a positive growth in one’s financial capacity—in particular, a growth in one’s total revenue, over time. Contrary to the prevalent charges laid at the door of high administrative and fundraising efforts by some, the authors find that in order to support financial capacity growth, nonprofits must make positive investments in favor of administrative and fundraising support but not in the form of high executive salaries.
Using data from the Cultural Data Project, this study extends the literature by examining the impact of financial disclosure information on donations to arts and culture-related nonprofit organizations in the United States. Results for organization financial stability are for the most part counterintuitive: financially unstable arts and culture-related nonprofits receive more donations. The current analysis supports prior research and finds evidence of a “crowding in” effect for fundraising expenses, suggesting that nonprofits that spend more on fundraising and marketing raise more funds than those that spend less. Additional analysis indicates efficiency matters to donors when it comes to fundraising efforts. As the “cost to raise a dollar” increases donations decrease. Nonprofit managers in arts and culture-related organizations concerned about increasing donations should consider strategies that will increase the efficiency of their fundraising and marketing efforts. Copyright © 2015 John Wiley & Sons, Ltd.
SYNOPSIS
This study examines whether and how a nonprofit organization's financial efficiency and its solicitation type—namely, whether it allows donors the ability to restrict contributions to their preferred choices—influence individual donations. We find that a nonprofit organization's financial efficiency indirectly influences individual donations through its effect on donors' confidence. We also find that a nonprofit organization receives significantly more donations when it allows donors to restrict donations to their preferred choices than when it does not. This positive effect is greater when the organization reports low efficiency than when it reports high efficiency. Thus, allowing the restriction of donations not only influences individual donations directly, but also compensates for the effect of low efficiency on donations.
In the search for sustainability and stability, a central tenet of social entrepreneurship holds that revenue diversification is desirable. Business and nonprofit researchers have long argued that by establishing and maintaining multiple streams of funding, including some combination of earned income, government contracts, foundation and corporate grants, and individual contributions, organizations are able to avoid excessive dependence on any single revenue source, stabilize their financial positions, and thereby reduce the risk of financial crises or interruptions in funding. By studying a large sample of nonprofit organizations in the US, this paper investigates whether this basic claim about the desirability of revenue diversification is both correct and complete. Against the dominant trend in the literature that focuses on the risks of revenue concentration, we find that nonprofit organizations that have highly concentrated and specialized forms of revenue actually experience some significant benefits, in the form of lower administrative and fund-raising expenses. However, these savings are associated with greater exposure to swings in an organization's financial position. Based on our study of the broader world of nonprofit organizations, we conclude that social entrepreneurs likely face a more complex set of choices about the composition of their revenue than previous research has suggested.
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Audit committee composition has attracted significant attention from legislators and regulators in recent years. Although most of the focus has been on corporate audit committees, recent legislative efforts underscore the importance of governance in the nonprofit sector. Using data from a survey of 118 chief financial officers of nonprofit organizations as well as financial data from the GuideStar database, we examine the composition of nonprofit audit committees and factors associated with their composition. The data show that many nonprofits have not adopted Sarbanes-Oxley reforms, since we find that 36 percent of nonprofits have audit committees that are not completely independent. Organizations that are larger, receive government grants, and use a Big 4 auditor are more likely to have audit committees with solely independent directors. Surprisingly, universities and hospitals are less likely to have solely independent directors on the audit committee. Eighty-eight percent of nonprofits have at least one financial expert on the audit committee, and organizations that receive government grants and have an internal audit function are more likely to have a financial expert on the committee. Overall, our findings support the view that nonprofit audit committee composition varies in response to the demands related to the need for resources, the presence of other monitoring mechanisms, and the type of nonprofit.
This article defines a charitable nonprofit organization as financially vulnerable if it is likely to cut service offerings immediately when a financial shock occurs. It discusses why the vulnerability of the nonprofit sector is of interest to researchers, explores the destabilizing role of third-party finance, considers the reasons for the lack of research on vulnerability, and presents a conceptual framework for identifying finan cially vulnerable nonprofits. Four vulnerability criteria are defined and applied to a 1983 national sample of tax returns filed by 4,730 U.S. charitable nonprofits. The financial data of at-risk organizations are then analyzed to discern the characteristics of vulnerable and other nonprofit organizations.
This article reports on a theory-based experiment to determine whether there is an observable relationship between changes in charitable giving to an organization and changes in the proportion of revenue it spends on administration and fund-raising (“overhead ratio”). This article argues that overhead ratios are meaningless for comparing organizations, but changes in overhead ratios communicate useful, though incomplete, information to donors. Empirical studies have used organization-level data with mixed results. This research improves on past work by using donor-level information on federal employees in the Chicago area who donate through the Combined Federal Campaign with ready access to information on the overhead ratios of all participating charities. Donations are aggregated by charity and compared over time. Statistical tests give evidence of an inverse relationship between changes in overhead ratios and changes in giving that are robust with respect to model specification; however, collectively other factors are much more important.
This article examines the effects of three major revenue strategies in nonprofit organizations. Evolving resource dependence is demonstrated by the shifting reliance on each source of funds: private contributions, government funding, and commercial activities. A wide-ranging literature review is condensed into summary profiles comparing revenue volatility, goal displacement, process, and structure effects of each strategy. The profiles are drawn upon to anticipate potential advantages and disadvantages of increasingly diversified revenue strategies employed by nonprofits to combat resource dependence. The potential interaction effects raise critical but unanswered questions about nonprofit performance, legitimacy, and public policy issues.
Two recent court cases have raised doubts about how faithful community foundation officials must remain over time to the donor's charitable intent. For trustees of community foundations, nonprofit managers, and potential donors, the two cases discussed in this article raise three critical questions: Under what conditions can and should a donor's charitable intentions be modified? Do nonprofit organizations have legitimate claims to funds in community foundations earmarked for their organizations by donors? Should donors consider disbursing their philanthropic funds themselves rather than seek to have them held in perpetuity in a foundation? In addition to addressing these questions, the author suggests that the two court cases examined here reveal something important about the broader evolution of philanthropy over the past three decades.
Endowments serve as financial buffers and safety nets for post-secondary institutions in uncertain financial times. Donor-restricted gifts and bequests often complicate the management and deployment of endowment assets. Public policy concerns, the Uniform Management of Institutional Funds Acts, and related case law are changing approaches used by states to alter the donors' “dead hand” when time and circumstances make carrying out conditions of restricted bequests unworkable.
The assumption of strongly ignorable treatment assignment is required for eliminating selection bias in observational studies. To meet this assumption, researchers often rely on a strategy of selecting covariates that they think will control for selection bias. Theory indicates that the most important covariates are those highly correlated with both the real selection process and the potential outcomes. However, when planning a study, it is rarely possible to identify such covariates with certainty. In this article, we report on an extensive reanalysis of a within-study comparison that contrasts a randomized experiment and a quasi-experiment. Various covariate sets were used to adjust for initial group differences in the quasi-experiment that was characterized by self-selection into treatment. The adjusted effect sizes were then compared with the experimental ones to identify which individual covariates, and which conceptually grouped sets of covariates, were responsible for the high degree of bias reduction achieved in the adjusted quasi-experiment. Such results provide strong clues about preferred strategies for identifying the covariates most likely to reduce bias when planning a study and when the true selection process is not known.
Among the most widely cited books in the social sciences, The External Control of Organizations has long been required reading for any student of organization studies. The book, reissued on its 25th anniversary as part of the Stanford Business Classics series, includes a new preface written by Jeffrey Pfeffer, which examines the legacy of this influential work in current research and its relationship to other theories. The External Control of Organizations explores how external constraints affect organizations and provides insights for designing and managing organizations to mitigate these constraints. All organizations are dependent on the environment for their survival. As the authors contend, âit is the fact of the organizationâs dependence on the environment that makes the external constraint and control of organizational behavior both possible and almost inevitable.â Organizations can either try to change their environments through political means or form interorganizational relationships to control or absorb uncertainty. This seminal book established the resource dependence approach that has informed so many other important organization theories.
Donors frequently impose restrictions on the use of contributions to non-profit institutions. These restrictions may be imposed in an attempt to ensure that the objectives of the donors are achieved, to limit administrative accretion (lattice), and to discourage the pursuit of objectives deemed by donors to not be fundamental to the core mission. On the other hand, donor restrictions may be costly to the extent that administrators possess better knowledge of the underlying production/cost function. This study evaluates the degree to which the common perception that the lack of financial flexibility inhibits institutional efficiency is empirically valid in the context of institutions of higher education. The degree of financial flexibility (the ratio of unrestricted net assets to total assets) is used as a measure of the degree to which institutional performance may be constrained by donor restrictions. Our results show a positive relationship between the degree of financial flexibility and cost inefficiency for all types of private higher education institutions. Thus, contrary to common belief, enhanced financial flexibility appears to lead to higher cost inefficiency. Conversely, greater financial restrictions appears to lead to more cost efficiency. This finding suggests that line item budgeting, for example, may not be as ineffective a cost control mechanism as it is commonly perceived to be. More rigorous comparative studies are needed to support the anecdotal evidence often cited to show the inefficiency of line-item budgeting.
- Yetman M. H.
The nonprofit starvation cycle
- A G Gregory
- D Howard
Nonprofit human service organizations: Funding strategies and patterns of adaptation
- K A Grønbjerg
Do donors discount low-quality accounting information?
- M H Yetman
- R J Yetman
An economic history of American art museums
- P Temin
Protecting the charitable investor: A rationale for donor enforcement of restricted gifts
- L Loftin