Pressure to Manage Ratios in Not-For-Profit Organizations: Evidence from Charity Managers
34 Pages Posted: 7 Jun 2012 Last revised: 20 Jun 2014
Date Written: April 6, 2014
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.
Keywords: nonprofit, charity, earnings management, ratio management
JEL Classification: M4, Ll3
Suggested Citation: Suggested Citation