Pressure to Manage Ratios and Willingness to Do So: Evidence From Nonprofit Managers

Abstract

We survey 200 nonprofit executives to investigate the pressure they experience to manage so-called efficiency ratios, and their reactions to that pressure. Specifically, we investigate whether managers’ perceptions of donor pressure are influenced by (a) the degree to which they rely on contributions and government grants, (b) the existence of restricted gifts, (c) oversight by monitoring institutions that may affect donor giving decisions, and (d) the sophistication of management. We then examine factors that affect the likelihood that managers will engage in ratio management. Interestingly, we find no evidence that nonprofits that rely more heavily on donor support feel greater donor pressure. Instead, we provide evidence that specific donors, such as those who make restricted gifts and government grantors, influence perceptions of pressure. Furthermore, more sophisticated managers perceive less pressure to manage ratios. When facing pressure to manage ratios, monitors and sophisticated managers reduce the likelihood of ratio management.