Non-profit overhead and efficiency from IRS administrative data

Abstract

This paper investigates the efficiency of non-profit overhead spending by estimating its marginal returns on total revenue using IRS data. To explore whether using the overhead ratio as a heuristic for non-profit operational quality is justified, we compare it with administrative efficiency or the efficiency by which overhead is transformed into total revenues. We find that underinvestment on overhead may be explained by reputational concerns. Reputational concerns may be justified given a negative relationship between administrative efficiency and overhead ratio.