Donations and the Overhead Ratio Are Related Even When Donors Do Not Bother About Efficiency

Abstract

Empirical research on donor behavior infers from donations being negatively related to overhead ratios (or indicators based on these ratios) that donors give more to more “efficient” organizations. This relation is proved to be at least partly driven by a purely mechanical link between donations and overhead ratios, which therefore should be isolated when studying empirically the behavioral effect of overhead ratio–based indicators on donors’ giving decisions.

A processing fluency perspective on overhead aversion: How much is too much?

“…Hence, consumers evaluate nonprofits in a unique manner relative to how they evaluate for‐profit organizations. One particular heuristic is the proportion of funding that goes to overhead, as consumers feel that funds going directly to program expenses are put to good use, while overhead expenses are perceived as more frivolous and less worthy of funding (e.g., Caviola et al, 2014; Jegers, 2021; Portillo & Stinn, 2018). As specified by section 501(c)(3) of the Internal Revenue Code, such information is publicly available as nonprofits are required by law in the United States to provide, upon request, copies of their tax‐exemption application and their three most recent IRS Form 990 annual information returns (Internal Revenue Service, 2022; National Council of Nonprofits, 2022a).…”

Does Revenue Concentration Really Bring Organizational Efficiency? Evidence From Habitat for Humanity

“…Jessica L. Berrett https://orcid.org/0000-0002-4419-4906 ChiaKo Hung https://orcid.org/0000-0001-6598-6024 Notes 1. While applying MPT to the nonprofit setting, one should be aware that nonprofits are limited in their ability to influence their sources of revenue (Jegers, 2022;Kingma, 1993;Mayer, 2022;Qu, 2019). Whether nonprofits are able to receive funding and how they allocate resources are largely subject to the expectations of their funders.…”