Pressure to Manage Ratios in Not-For-Profit Organizations: Evidence from Charity Managers

34 Pages Posted: 7 Jun 2012 Last revised: 20 Jun 2014

See all articles by Linda M. Parsons

Linda M. Parsons

University of Alabama - Culverhouse School of Accountancy

Charlotte Pryor

University of Southern Maine - School of Business

Andrea Alston Roberts

University of Virginia - McIntire School of Commerce

Date Written: April 6, 2014

Abstract

This study surveys 200 nonprofit executives to investigate the pressure they experience to manage so-called efficiency ratios. Specifically, we investigate whether managers’ perceptions of such pressure depends on the type of contributors and on manager characteristics. We measure pressure in two ways: 1) directly through responses to survey questions that ask about perceived pressure, and 2) indirectly through responses to survey questions that ask about specific actions that management would take to report favorable ratios. We assume that if managers are willing to engage in ratio management (either through financial reporting or spending choices), then there is an inherent pressure to do so. We find that pressure to report favorable ratios is mediated by donor type, especially contributors who provide restricted resources or rely on watchdog organizations (e.g. Charity Navigator). We also find that managers are more likely to perceive pressure to report favorable ratios to appeal to potential (rather than existing) donors. On the other hand, manager sophistication is negatively associated with pressure to manage ratios.

Keywords: nonprofit, charity, earnings management, ratio management

JEL Classification: M4, Ll3

Suggested Citation

Parsons, Linda M. and Pryor, Charlotte and Alston Roberts, Andrea, Pressure to Manage Ratios in Not-For-Profit Organizations: Evidence from Charity Managers (April 6, 2014). Available at SSRN: https://ssrn.com/abstract=2079304 or http://dx.doi.org/10.2139/ssrn.2079304

Linda M. Parsons

University of Alabama - Culverhouse School of Accountancy ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Charlotte Pryor

University of Southern Maine - School of Business ( email )

P.O. Box 9300
Portland, ME 04104
United States

Andrea Alston Roberts (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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