Examining the Influence of Donor Charitable Tax Incentives on Nonprofit Program Expense Funding

• In Event: 1.01 Nonprofit Research Concurrent Session: Donation Decisions

Abstract

In this study, I use the relation between donors’ charitable tax incentives and nonprofit organizations’ (NPOs) program service expenses to determine program service underfunding. I identify an NPO as underfunded if it falls below the program service funding benchmark based on the residuals from industry-year regressions of program service expense on donor charitable tax incentives. I also examine the firm characteristics of underfunded NPOs and find that these organizations receive fewer government grants and have lower program service revenue than their counterparts. They also have weaker governance at the organization and state levels. In addition, these organizations tend to have higher endowment reserves, and their endowments are more sensitive to revenue changes compared to their counterparts.

Author

• Iguehi Rajsky, Temple University