Nonprofit Organizational Effectiveness: The Effects of Financial and Social Performance on Its Scale and Scope of Operations, and Social Impact

Abstract

In the face of increased accountability pressures, nonprofits are searching for ways to demonstrate their effectiveness. In the Absence of meaningful tools to evaluate effectiveness, financial ratios are largely used to approximate it. There is an extensive body of literature on the determinants of nonprofit effectiveness. However, it largely remained exploratory in nature. This is a novel attempt to propose a theoretical framework linking performance to effectiveness, but also applying this to a larger sample by means of a survey. For this, we employed Iwu et. al. (2015) configuration for the identification of major financial and non-financial performance indicators of NPOs and used in the Program Logic Model (W.K. Kellogg Foundation, 2004) to assess its impact. We hypothesize that this financial and non-financial performance and activities produced positive output in terms of increased participation that in turn, leads to positive outcomes on the participants live and at last these outcomes leads to positive impact towards the society by reducing the problems this NPO are set to tackle. For the empirical side, we collected data from 200 participants belonging to 14 NROs operating in Pakistan, by means of a close-ended questionnaire. Data were analyzed using confirmatory factor analysis and structured equation modeling. The results were according to the theory and showed a positive and significant effect of financial and non-financial performance on output, then to the outcome and finally to impact. These findings can be used by the growing number of not-for-profits throughout the world to measure and report performance.