1. Linda M. Parsons, The University of Alabama; Charlotte Pryor, University of Southern Maine; Andrea Alston Roberts, University of Virginia Discussant: Teresa P. Gordon, University of Idaho 1

2. Triangulating on Admin Costs This paper fills a gap in knowledge about nonprofit manager behavior It adds insight to current body of knowledge about whether donors can rely on reported efficiency ratios Archival (Quasi-experimental) Experiments Surveys 2

3. Related Lines of Research If donors pay attention to efficiency ratios, does that give managers an incentive to “cook the books” to meet industry standards? Can donors trust the numbers managers provide? Donor Behavior Manager Behavior 3

4. Studies on Aggregate Giving using Archival Data Weisbrod and Dominguez (1986) Steinberg (1986) Tinkelman (1998, 1999) Okten and Weisbrod (2000) Marudas (2004) relationship between wealth and efficiency on donations Similar studies in other countries include Khanna and Sandler (2006), Khanna, Posnett & Sandler (1995) and Posnett and Sandler (1989), Callen (1994), Wong, Chua, et al. (1998), Marcuello and Salas (2001) Impact of administrative costs on donations Jacobs and Marudas (2009) Tinkelman and Mankaney (2007) Frumkin and Kim (2001) and Greenlee and Brown (1999) Studies on management behavior addressing issue of whether “Managers Cook the Books” Urban Institute “Cost Study” and problem of so many tax-exempt organizations reporting zero fundraising or administrative expenses Jones, C. L. and A. A. Roberts (2006) on issue of joint cost allocation Krishman, Yetman and Yetman (2006) and Yetman (2009 working paper) on expense misreporting and Keating, Parsons, and Roberts (2008) on misreporting fundraising costs. Yetman and Yetman (2009) explore depreciation as another accounting choice that influences ratios (working paper) Donor Behavior Manager Behavior Archival 4

5. Dictator game studies Eckel and Grossman (1996) Also working papers by Church & Parsons; Li & McDowell Other experiments related to how donors use information Khumawala & Gordon (1997) Khumawala, Parsons & Gordon (2005) Buchheit and Parsons (2006) Parsons (2007) Also working paper by McDowell & Fogarty ??? Donor Behavior Manager Behavior Experimental 5

6. Traditional line of research done by groups interested in philanthropy and fundraising Example: In Independent Sector/Gallup polls, over 70 percent the respondents who made contributions during the year reported supporting religious endeavors. (Hodgkinson, et al., 1992). Ram Cnaan – large panel study of donors Other recent reports on how donors use internet Donor Behavior Manager Behavior Survey 6

7. White Paper: The Nonprofit Marketplace Bridging the Information Gap in Philanthropy 7

8. Cnaan et al. (working paper) 8

9. White Paper: The Nonprofit Marketplace Bridging the Information Gap in Philanthropy 9

10. Traditional line of research done by groups interested in philanthropy and fundraising Example: In Independent Sector/Gallup polls, over 70 percent the respondents who made contributions during the year reported supporting religious endeavors. (Hodgkinson, et al., 1992). Ram Cnaan – large panel study of donors Other recent reports on how donors use internet Urban Institute cost study in late 1990s {issued several “briefs” and led to published papers such as Hager (2003), Hager, Pollak and Rooney (2001), Hager and Greenlee (2004) } This paper! Donor Behavior Manager Behavior Survey 10

11. Research Design Based on Graham, J. R., C. R. Harvey, and S. Rajgopal. 2005. The economic implications of corporate financial reporting. Journal of Accounting and Economics 40 (1-3): 3-73. For capstone analysis, managers respond to a hypothetical scenario Makes it possible to assess what managers believe they will do conditional on factors that may relate to their motivation to manage ratios Does not require managers to recall past actions (memory may not be reliable) 11

12. Points of interest to me Proportion of managers admitting to manipulation 35% say they use their allocation method so they can meet efficiency ratio targets 32% say they’ve changed spending plans to meet efficiency ratio targets (not just manipulation of allocations) 22% changed plans to hire administrative staff 16% changed plans for staff training 19% postponed upgrades to computer systems 14% postponed purchase of accounting software Self-fulfilling prophecy? Managers at efficient NPOs believe it is important to report low administrative ratios 12

13. Points of interest to me Keeping administrative costs low Less than a third of managers were worried about Charity Navigator or other rating agencies State regulators Combined Federal Campaigns Managers also appear to worry about administrative costs to satisfy grantors rather than donors This is particularly obvious in the multivariate analysis of responses to the hypothetical scenario (significant in all 4 models for loss of grantors and not significant in any model for loss of donors) 13

14. Points of interest to me At a 10:15 concurrent session on Tuesday, I’ll be presenting some aggregate-level work on management types and the “costs and benefits of voluntary disclosures” Glad to see following quote from this study: “These responses indicate that managers believe there are costs to reporting high administrative ratios” Other researchers in the field will also be glad to cite this paper as support for assumptions we’ve taken for granted in the past! 14

15. Limitations – missing? The authors did a lot of work to ameliorate the nonresponse bias that plagues survey research Nonresponse bias is the possibility that those who did not answer survey questions would have answered them differently than those who chose not to answer Compared financial data between responders and non responders Paper could briefly acknowledge the issue and report that there were no (?) statistically significant differences between the two groups reported in Table 3 15

16. Annotated Bibliography from ARNOVA 2009 Conference I was part of a panel that put together a “literature review” regarding studies on contributions If you’d like a copy, you can find it on my website: http://www.cbe.uidaho.edu/tgordon and navigate to “presentations and comment letters” page or send email request to me, Linda Parsons, Dan Neely, Dan Tinkelman, Andrea Roberts, Evelyn McDowell http://www.cbe.uidaho.edu/tgordon Title of panel: Influencing Donors with the Numbers 16

17. Other substantive comments for authors P. 17. Not knowing the entire research design at this point in my reading, I was trying to associate the “six spending items” discussion with Table 6. In a published paper, maybe it would be so much of a problem but there wasn’t an ‘insert Table 6’ here notation until page 25. The hypothetical questions might be mentioned at this point to avoid having the next reader as confused as I was??? In addition, please clarify Table 6 in the title or possibly with a note that gives the wording of the hypothetical question P. 17. It wasn’t clear to me whether the 22%, 16%, 19% and 14% figures reported are of the total sample or just a percentage of the 32% who admitted making spending changes. I assumed it was 22% (etc) of total sample??? Discussion of “created” variables – I found it confusing in some cases to figure out which questions were combined for the final analysis. The actual wording was not included (LoseDonors; LoseGrants). Perhaps the discussion would be clearer if each item were numbered on the initial tables so you could refer to questions 2 and 6 on Table 5 for Lose Donors (as an example). For the “outsiders” variable, you could likewise refer to the “all 3 questions” reported on Table 4. It would be nice to be able to shorten the on-table notes since the language is pretty identical in the latter part of the paper (pages 18-23). 17

18. Picky little comments on improving paper – obviously some are just my personal biases! P. 5 Middle of middle paragraph – Goes from “these results” to “The study” The switch to “the study” threw me, wasn’t sure if you were now talking about someone else's study. Try “our study” or “this study” for clarity. P. 7, verb tense issues. “We solicit feedback” and “We ask a small number” etc I know it is traditional to talk about RESULTS in present tense but it seems more reasonable to discuss process undertaken BEFORE you started the analysis in past tense because these steps had to take place before you could do your analysis. P. 11, first whole paragraph. Age of whom problem I’m pretty sure the median age reported in the paragraph is for the organization rather than the respondents – but make it clear! P. 14, avoid making nouns into verbs “incentivized” (makes me shudder) Better to say “Thus, in order for managers to have an incentive to manage accounting information, a necessary condition…” Better label or explanation on Table 6 (as discussed previous slide) 18