THE COMBINED EFFECT OF DONATION PRICE AND ADMINISTRATIVE INEFFICIENCY ON DONATIONS TO US NONPROFIT ORGANIZATIONS

We examine the effects that two accounting measures of nonprofit organization (NPO) inefficiency, administrative inefficiency and donation price, have on donations to US NPOs using a better-specified model and industry-specific samples. Although numerous studies examine the effect that donation price has on donations (e.g., Marudas and Jacobs, 2006 ; Marudas, 2004 ; Khanna and Sandler, 2000 ; and Tinkelman, 1999 ), only three studies examine the effect of administrative inefficiency on donations ( Tinkelman and Mankaney, 2007 ; Frumkin and Kim, 2001 ; and Greenlee and Brown, 1999 ). However, none of these studies tests donation price and administrative inefficiency in one model and only two test industry-specific samples of NPOs. We find that misspecifying the model by including only one of these two inefficiency measures creates substantial bias and the effect of administrative inefficiency on donations varies substantially across industries. Administrative inefficiency has a significantly negative effect on donations to NPOs in the full sample and the philanthropy sample, but no significant effect on donations to NPOs in the arts, education, health, or human services samples. Furthermore, donation price has a significantly negative effect on donations to NPOs in the full sample and the education, health and human services samples, but not in the arts or philanthropy samples. Results are also reported for the other variables in the model – government support, program service revenue, fundraising and organizational age, wealth and size.