Strategic Positioning and the Financing of Nonprofit Organizations: Is Efficiency Rewarded in the Contributions Marketplace? (original) (raw)
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The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature. First, this Article breaks new ground in identifying sources of inefficiency at nonprofits. The literature focuses on incentives, arguing that managers and board members are less motivated to run a nonprofit efficiently because they cannot keep its profits. In response, this Article emphasizes that the problem is not just motivation, but also...
annual conference of the Association for Research on Nonprofit Organizations and Voluntary Action, Miami, FL, 2001
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Nonprofits compete in donation markets for resources and are expected to report on the financial stewardship of the organization. Without a clear comparative signal to differentiate organizations in this resource market, simple financial ratios have been used as proxy measures of relative organizational efficiency. Two conceptual models can be applied to the use of these ratios: first, as dichotomous conformance thresholds that identify poor performers who are unable to meet some minimum standard, or second, as directly comparable scales of performance where more optimized ratios can be used to distinguish the best performers. These two different conceptual models imply two different managerial approaches and potential organizational outcomes. This research assesses the extent to which nonprofits that are evaluated by an external evaluator appear to use the ratios as thresholds to pass or as scales to optimize.
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Annual Meeting of the Association for …, 2001
There has been growing coverage by the press and the accounting profession about how nonprofits report their management and general costs. There has also been growing attention by some donors, perhaps made most famously by claims by some donors that nothing should go to administration. While this area of nonprofit management has caught the attention of the public, it has largely escaped the research lens of scholars. This paper is a first step to understanding and explaining what management and general costs look like in the nonprofit sector and whether or not various institutional characteristics such as mission, size, age, sources of revenues, and/or accounting practices can help explain some of the variation in management and general expenses. We find that these institutional characteristics do matter quite a bit in explaining differences in management and general costs in nonprofits.
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Efficiency in both marketing/fundraising and production of services is an important managerial concern for charitable organizations. Nonprofits' evaluation, however, suffers from the lack of viable, generally accepted metrics to measure performance. In this paper, a method for metric determination is introduced that separately evaluates the efficiency of fundraising and the ultimate service provision in arts and heritage charities, using a two stage Data Envelopment Analysis (DEA). This allows efficiency assessment from two perspectives: 1) the effort directed toward fundraising and 2) the efficiency of utilizing those generated funds toward the stated charitable cause. This analysis is applied to U.S. Internal Revenue Service (IRS) data for charitable organizations classified as, "Arts, Culture and Humanities," directed toward "Cultural/Ethnic Awareness." For an inefficient charity, this paper 1) provides a benchmarking methodology for identifying sources of improved fundraising and program service delivery; 2) determines the sources of input or output inefficiency and 3) illustrates how many more funds a charity could raise if it were efficient.
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Financial Disclosure Management by Nonprofit Organizations
SSRN Electronic Journal, 2002
This paper examines how nonprofit organizations respond to incentives to manage their publicly available financial information. Prior research identifies two operating ratios donors commonly use to evaluate the efficiency and effectiveness of nonprofits (i.e., the program service ratio, defined as the fraction of total expenses committed to advancing the charitable mission of the organization, and the fundraising ratio, defined as the ratio of fundraising expenses to donations revenue). Nonprofit managers have an incentive to over-report the expenses classified as program services and under-report the expenses classified as administrative and fundraising in order to improve these ratios. We examine whether nonprofits respond to these incentives, and we find evidence consistent with opportunistic cost shifting to improve the program service and fundraising ratios. Additional analysis finds that smaller nonprofits that are more reliant on donations revenue manipulate their operating ratios to a greater extent.