Andrea Alston Roberts

Nonprofit Resource Allocation Decisions: A Study of Marginal versus Average Spending

Charitable organizations are often evaluated by donors and regulators based on various efficiency ratios, including the program ratio. We explore whether charities conform to donor pressure to maintain or improve program ratios when allocating resources. We use a sample of 5,626 charities between 1986 and 2007 and compare marginal spending patterns to average spending patterns in the prior period when budgets change. We provide evidence that in most instances, spending patterns do not change when budget increases are less than fifteen percent. That is, program ratios do not change on average. However, the paper documents that small charities, those that rely little on contributions, charities not funded by the government, and organizations that do not fundraise make resource allocation decisions that decrease the program ratio when budgets increase. These findings provide evidence that some charities feel less pressure to conform to donor pressure than others. We find that when budgets decrease, charity managers make resource allocation decisions that decrease the program ratio. This asymmetry suggests that charity managers are more willing to report declining program ratios when budgets decrease but not improve program ratios when budgets increase.

Pressure to Manage Ratios and Willingness to Do So: Evidence from Nonprofit Managers

We survey 200 nonprofit executives to investigate the pressure they experience to manage so-called efficiency ratios, and their reactions to that pressure. Specifically, we investigate whether managers’ perceptions of donor pressure are influenced by (a) the degree to which they rely on contributions and government grants, (b) the existence of restricted gifts, (c) oversight by monitoring institutions that may affect donor giving decisions, and (d) the sophistication of management. We then examine factors that affect the likelihood that managers will engage in ratio management. Interestingly, we find no evidence that nonprofits that rely more heavily on donor support feel greater donor pressure. Instead, we provide evidence that specific donors, such as those who make restricted gifts and government grantors, influence perceptions of pressure. Furthermore, more sophisticated managers perceive less pressure to manage ratios. When facing pressure to manage ratios, monitors and sophisticated managers reduce the likelihood of ratio management.

Pressure to Manage Ratios in Not-For-Profit Organizations: Evidence from Charity Managers

This study surveys 200 nonprofit executives to investigate the pressure they experience to manage so-called efficiency ratios. Specifically, we investigate whether managers’ perceptions of such pressure depends on the type of contributors and on manager characteristics. We measure pressure in two ways: 1) directly through responses to survey questions that ask about perceived pressure, and 2) indirectly through responses to survey questions that ask about specific actions that management would take to report favorable ratios. We assume that if managers are willing to engage in ratio management (either through financial reporting or spending choices), then there is an inherent pressure to do so. We find that pressure to report favorable ratios is mediated by donor type, especially contributors who provide restricted resources or rely on watchdog organizations (e.g. Charity Navigator). We also find that managers are more likely to perceive pressure to report favorable ratios to appeal to potential (rather than existing) donors. On the other hand, manager sophistication is negatively associated with pressure to manage ratios.