Breaking the nonprofit starvation cycle? An experimental test

Main Article Content

Yuan Tian
Chiako Hung
Peter Frumkin

Keywords

Charitable giving, Overhead aversion, Fundraising strategy, Agency theory, Information asymmetry

Abstract

Donors' overhead aversion leads to a starvation cycle that hampers the ability of nonprofits to fulfill their missions. This study provides new evidence and suggests possible solutions to break the starvation cycle. Drawing on agency theory, this study adopts a between-subject experimental design to test two strategies for nonprofits with high overhead that seek to overcome donors' overhead aversion. The results suggest that donors are indeed troubled by high overhead ratios. However, charitable contributions to high-overhead nonprofits could be significantly increased if the nonprofits provide information regarding their organization’s performance and transparency. The study contributes to the literature in two ways: It analyzes the starvation cycle from the donors' perspective rather than nonprofits' perspective, and it tests proactive strategies in response to overhead aversion. This study concludes that breaking the nonprofit starvation cycle could begin with nonprofits taking a more open and direct stance when confronting the issue of overhead aversion.