Abstract
Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions. This study provides new evidence and suggests possible solutions to break the starvation cycle. Drawing on agency theory, this study adopts a between-subject experimental design to test two strategies for nonprofits with high overhead that seek to overcome donors' overhead aversion. The results suggest that donors are indeed troubled by high overhead ratios. However, charitable contributions to high-overhead nonprofits could be significantly increased if the nonprofits provide information regarding their organization’s performance and transparency. The study contributes to the literature in two ways: It analyzes the starvation cycle from the donors' perspective rather than nonprofits' perspective, and it tests proactive strategies in response to overhead aversion. This study concludes that breaking the nonprofit starvation cycle could begin with nonprofits taking a more open and direct stance when confronting the issue of overhead aversion.
Highlights
Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions
Based upon agency theory and the existing literature, we argue that breaking the nonprofit starvation cycle could start with nonprofits providing more information to respond to the concerns that donors might have when they are aware of high overhead ratios (See Figure 1 and Figure 2)
Manipulation and Randomization Check In order to ensure that our manipulations on high overhead ratio, effective performance, and high transparency were effective, we conducted manipulation checks on four variables, Nonprofit Overhead Ratio, Concern about Nonprofit Performance, Concern about Nonprofit Transparency, and perceived highest acceptable overhead, across conditions
Summary
Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions. Donors expect most financial resources should be devoted to program services to maximize social impact rather than overhead expenses for facilities, equipment, and staff support (Bowman, 2006; Buchheit & Parsons, 2006; Hager et al, 2004; Keating & Frumkin, 2003; Parsons, 2007) Another line of literature has investigated whether reported overhead ratios decreased among nonprofit organizations over time (Lecy & Searing, 2015; Schubert & Boenigk, 2019).
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