Toward a Theory of Limited Nonprofit Organizational Effectiveness

Wing, Kennard T.; Rooney, Patrick

doi:10.2139/ssrn.4256936

Cited by 3 publications

(4 citation statements)

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“…In recent years, there has been a growing emphasis on nonprofit efficiency (Hung & Berrett, 2023a, 2023b, prompting this study to propose avenues for future research. By continuing to employ expense ratios, not only will measurement errors persist, but it will also perpetuate the misguided notion that these ratios reflect organizational efficiency (Gregory & Howard, 2009;Lecy & Searing, 2015;Tian et al, 2020;Wing et al, 2004aWing et al, , 2004bWing, Hager, et al, 2004). In reality, these ratios merely indicate how nonprofit organizations allocate their financial resources.…”

Section: Discussionmentioning

confidence: 99%

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

Berrett,

Hung

2023

Nonprofit and Voluntary Sector Quarterly

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Past empirical studies demonstrate a positive connection between revenue concentration and organizational efficiency. This supports the idea that concentrating revenue helps minimize transaction costs of nonprofit organizations, resulting in greater efficiency. However, this finding contradicts the belief that revenue concentration increases the risk of revenue volatility, leading to service delivery disruptions and reduced efficiency in nonprofits. Moreover, these studies have used an efficiency measure that might not be suitable. To address this, our study examines the relationship between revenue concentration and organizational efficiency using a more appropriate measure. Analyzing data from Habitat for Humanity, we discover a U-shaped relationship: nonprofits are most efficient when fully diverse or fully concentrated in revenue. These findings contribute to the ongoing debate on nonprofit revenue diversification, with significant implications for nonprofits. They also highlight the importance of using more appropriate efficiency measures in future scholarly research.

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Section: Discussionmentioning

confidence: 99%

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

Berrett,

Hung

2023

Nonprofit and Voluntary Sector Quarterly

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“…Nearly two decades ago, researchers at the Urban Institute and Indiana University (Wing, Hager, et al, 2004) conducted surveys, case studies, and literature reviews under the auspices of their Nonprofit Overhead Cost Project . The project focused on field research and education, consequently influencing how the BBB Wise Giving Alliance and Charity Navigator defined their spending ratios, how the Internal Revenue Service (IRS) asked public charities to account for expenses associated with fundraising contractors, and how industry watchdogs in 2013 advanced a campaign to raise awareness of “the overhead myth.” Perhaps most influential, however, is the project’s articulation of the dynamics of donor decisions and nonprofit spending that was later branded by Gregory and Howard (2009) as the nonprofit starvation cycle .…”

Section: Overhead Aversion and The Starvation Cyclementioning

confidence: 99%

“…The original (unpublished) model can provide a much-needed map for research on the value of and popular aversion to overhead. The Nonprofit Overhead Cost Project ’s conceptual offerings arguably hit its pinnacle in May of 2004, when Ken Wing presented the project’s culminating ideas at the 3rd International Conference on Systems Thinking in Management (Wing, Pollak, & Rooney, 2004a; see also Wing, Pollak, & Rooney, 2004b). Later in November, Wing and Hager (2004) presented a simplified version of the May model, and it was this simplified version that Gregory and Howard branded as the starvation cycle and it became viral.…”

Section: Overhead Aversion and The Starvation Cyclementioning

confidence: 99%

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Do Donors Penalize Nonprofits With Higher Non-Program Costs? A Meta-Analysis of Donor Overhead Aversion

Hung

Hager

2022

Nonprofit and Voluntary Sector Quarterly

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Disparate research on overhead aversion and nonprofit starvation can benefit from a conceptual model that explains their relationships. Following resurrection of such a model, we focus on one important piece: the relationship between overhead spending and nonprofit donations. Studies on this topic have produced inconclusive results. Our meta-analysis clarifies the relationship by synthesizing a sample of 30 original studies with 244 effect sizes. We uncover a negative association suggesting that donors penalize nonprofits with higher overhead costs. Moreover, our meta-regression models reveal that experimental designs detect higher donor aversion than studies that use other research designs and that amateur donors have more intense overhead aversion than professional donors. However, studies that measure administrative costs do not report more negative effects than studies that measure both administrative and fundraising costs. The overall contribution of the meta-analysis solidifies the conceptual link between reported capacity costs and funders’ giving decisions, a key arc in the nonprofit starvation cycle.

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Linking overhead expenses and nonprofit effectiveness: Evidence from Habitat for Humanity

Berrett

2021

Nonprofit Mgmnt & Ldrshp

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Public scrutiny of the nonprofit sector often focuses on excessive overhead spending, seeing it as an obstacle to mission fulfillment. Yet, there have been few prior studies on the impact of overhead expenditures on the effectiveness of nonprofit organizations. Building and utilizing a unique dataset of Habitat for Humanity affiliates across the United States between 2010 and 2016, this paper analyses the relationship between overhead spending and effectiveness using fixed effects and mediation models. Results indicate that an increase in the overhead ratio leads to greater nonprofit effectiveness in terms of more houses built and revenue raised. However, findings suggest that overhead ratios of more than 15% yield positive but diminishing returns. Findings also show that organizational capacity indicators such as investments into salaries, professional fees, marketing, information technology, and fundraising mediate a positive relationship between the overhead ratio and nonprofit effectiveness. Implications for both scholars and practitioners are discussed.

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Toward a Theory of Limited Nonprofit Organizational Effectiveness

Cited by 3 publications

References 0 publications

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

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

Do Donors Penalize Nonprofits With Higher Non-Program Costs? A Meta-Analysis of Donor Overhead Aversion

Linking overhead expenses and nonprofit effectiveness: Evidence from Habitat for Humanity

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