The Spend-Save Decision: An Analysis of How Charities Respond to Revenue Changes

30 Pages Posted: 10 Feb 2005 Last revised: 13 May 2012

See all articles by Christopher L. Jones

Christopher L. Jones

George Washington University - Department of Accountancy

Karen A. Kitching

George Mason University

Andrea Alston Roberts

University of Virginia - McIntire School of Commerce

Pamela C. Smith

University of Texas at San Antonio - Department of Accounting

Date Written: February 1, 2012

Abstract

We study how charities adjust spending when revenues change. Understanding the decision to spend or save revenues provides insights into management behavior and resource allocations. Our results indicate that, on average, the marginal change in overall spending is substantially less than the marginal change in revenue, indicating that charities smooth spending. Charities save a substantial portion of additional revenues and appear to mitigate reductions in revenues by using past savings, especially amounts saved in the previous year. We also find evidence that charities anticipate revenue declines and save for that purpose. Charities with fewer constraints, such as those with larger net assets and those with revenues from sources less likely to impose revenue spending restrictions, do more smoothing by adjusting spending less.

Keywords: Charity, nonprofit, efficiency, program ratio, marginal spending

JEL Classification: H39, L31, M41, D82, G34

Suggested Citation

Jones, Christopher L. and Kitching, Karen A. and Alston Roberts, Andrea and Smith, Pamela C., The Spend-Save Decision: An Analysis of How Charities Respond to Revenue Changes (February 1, 2012). Accounting Horizons, Forthcoming, Available at SSRN: https://ssrn.com/abstract=664603 or http://dx.doi.org/10.2139/ssrn.664603

Christopher L. Jones

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-3529 (Phone)
202-994-5164 (Fax)

Karen A. Kitching

George Mason University ( email )

Fairfax, VA
United States
703-993-9038 (Phone)
703-993-1809 (Fax)

HOME PAGE: http://business.gmu.edu/facultyandresearch/faculty/profile/47/41/

Andrea Alston Roberts (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

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

Pamela C. Smith

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
250
Abstract Views
3,022
rank
149,110
PlumX Metrics