Management of Charitable Program Expense Ratios in the Charity Sector

Abstract

We examine factors likely to influence charity managers’ propensity to manage their charitable program expense ratios. To this end, we survey 202 Canadian charities. First, we ask managers whether they think a high charitable program expense ratio is important. The results suggest that managers are less concerned with charitable program expense ratios when there are no regulatory restrictions for this figure, but they are more (less) inclined to post a high charitable program expense ratio when the charity depends on private donations (relies on government grants). We also find a positive relationship between education level and managers’ perception of the importance of having a high charitable program expense ratio. Second, for managers who believe having a high charitable program expense ratio is important, we use a logit model to analyse their propensity to manage the ratio upward. We show that improving the management team's reputation, avoiding losing the organisation's charitable status and retaining or obtaining government grants propel charity managers to alter the ratio. However, managers with more experience in a management position in charities and those with higher levels of education are less likely to engage in this practice.