The Surprising Repetitiveness of Reported Program Ratios

• In Event: Nonprofit Governance and Performance

Abstract

Although economic theory, the concept of operating leverage, and the volatility of business operations each suggests that one would expect ratios to vary over time, we observe a substantial number of nonprofits that experience changes in total spending, report the same program ratio period over period.
In this study we provide evidence consistent with the notion that when some nonprofits report identical ratios that this is the result of ratio management. We find nonprofits are more likely to report identical program ratios when: resource providers – donors and lenders – explicitly or implicitly rely on ratios; pay is determined, at least in part, by performance; and the potential for regulatory interference is high. We find that nonprofits are more likely to report identical ratios when faced with these incentives and when financial information is easily and readily accessible. We also find our results are conditioned on nonprofit type. Our results are robust even after considering the possibility that identical ratios may reflect stable operations.

Authors

• Qianhua Ling, Marquette University

• Andrea Alston Roberts, University of Virginia