Cost Stickiness in the New Zealand Charity Sector

Abstract

We investigate whether New Zealand charities exhibit cost stickiness, conceptualized as cost increases in response to an increase in income that are greater than the cost decreases associated with an equivalent decrease in income. Drawing on the holistic accountability rationale, we posit that charity managers consider themselves accountable to a wide range of stakeholders and, therefore, are more concerned about the social impact of their managerial decisions. As a result, charity managers will be reluctant to adjust resources downward immediately after an income drop, as such decisions could lead to the loss of trust and confidence of their internal and external stakeholders. Based on a large sample of charities in New Zealand, we find evidence of cost stickiness. Importantly, we find that cost stickiness varies across a number of characteristics of charities, including charity size, sources of income and expenditure, crisis periods, and the sectors within which the charities operate. Our study contributes to a hitherto unexplored setting and provides empirical evidence on the theoretical debate of hierarchical versus holistic accountability in the not-for-profit sector.