Administrative Efficiency of Charity Foundations in China: Dose Administrative Efficiency Affect Donations?

Background/Purpose:

Charity Foundations in China currently experience fast development, but also face public trust crisis. As scandals of corruption occurred in China’s charity foundations, the public began to question the charity foundations for their administrative efficiency and the allocation of resources. Thus charity foundations managers begin to consider how to increase donations through improving administrative efficiency.

Administrative efficiency, defined as the capacity of organizations to produce the desired outcomes with the minimum resources, is an important indicator of the quality of administrative system. Based on consumer demand theory and stakeholder theory, high administrative efficiency can attract more donations from the public.

However, previous researches found inconsistent relationship between administrative efficiency and donations. One reason was that different researchers use different proxy variables of administrative efficiency to analyze the relationship between administrative efficiency and donations. Also, there might be nonlinear relationship between administrative efficiency and donations, which was not tested before. Therefore, in this study, we hypothesized a nonlinear relationship between administrative efficiency and donations, and included three mostly used measures of administrative efficiency to compare the results. 

Methods:

Data

Our data came from 2011-2014 China Charity Foundation Annual Reports on Chinese Ministry of Civil Affairs official website. In the report, 1,031 cases have released donation information for two consecutive years from 2012 to 2014. We then dropped cases with missing data on key variables. The final sample size is 578.

Measures

We adopted three measurements for administrative efficiency: AR, calculated as the administrative expenses/(administrative expenses+ program expenses)); ADMIN, calculated as the administrative expenses/total expenses; and PRICE, calculated as total expenses/program expenses.

Donation, the dependent variable, was measured as the amount of donation received in the following year.

Control variables included salary of managers, registration status, number of board members, number of employees, total assets, and the percentage of fundraising expenses in total expenses.

Based on prior literatures, all variables were transformed to natural logarithm forms.

Analytic Strategy

We used both linear regression model and nonlinear regression model (add X²) to test the effects of administrative efficiency on donations in the following year. We included the three different measures of administrative efficiency in separate models and included all control variables.

Results

We found the nonlinear models had better fit than linear models. Administrative efficiency had significant nonlinear effect on donations. Increasing administrative expense ratio would increase donation to some extent. However, when it reached to a certain point, the increasing administrative expense ratio would decrease donation. The results were consistent with different measures of administrative efficiency.

Contribution to the Field

Our study adds Chinese data to this field and provides data result of developing countries. By using nonlinear models and including different measurements, our study explains the inconsistent results in literatures. Also, based on conceptual frameworks of consumer demand theory and stakeholder theory, our research provides a new approach for charity foundations in China to analyze the donation market.