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Charitable Organizations’ Cost Disclosure Mitigates Overhead Aversion

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Listed:
  • Kwanho Suk

    (School of Business, Korea University, Seoul 02841, Korea)

  • Triza Mudita

    (School of Business, Korea University, Seoul 02841, Korea)

Abstract

Charities face common problems in which donors tend to avoid charities with high overhead rates. This overhead aversion phenomenon forces charities to suppress their overhead spending, which impedes them from performing as best as they can. Substantial research has attempted to mitigate overhead aversion by eliminating the need to cover overhead expenses by donors. The present work takes a different approach and presents a method to reduce overhead aversion and to improve the attitude toward the charity by providing donors with details of the overhead costs. Study 1 demonstrates that disclosing the overhead cost improves donors’ attitude toward the charity. Moreover, the effect is mediated by the donor’s attitude toward the overhead. Study 2 shows that presenting cost information is more effective than the methods proposed by the existing literature (e.g., presenting a message that addresses the importance of overhead). The research contributes to the literature by demonstrating how to communicate with donors to increase their evaluations of the charity.

Suggested Citation

  • Kwanho Suk & Triza Mudita, 2021. "Charitable Organizations’ Cost Disclosure Mitigates Overhead Aversion," Sustainability, MDPI, vol. 13(23), pages 1-12, December.
  • Handle: RePEc:gam:jsusta:v:13:y:2021:i:23:p:13425-:d:694751
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    References listed on IDEAS

    as
    1. Hyun Hye Kim & EunKyoung Han, 2020. "The Application of the Theory of Planned Behavior to Identify Determinants of Donation Intention: Towards the Comparative Examination of Positive and Negative Reputations of Nonprofit Organizations CE," Sustainability, MDPI, vol. 12(21), pages 1-19, November.
    2. Chiara Leardini & Gina Rossi & Stefano Landi, 2020. "Organizational Factors Affecting Charitable Giving in the Environmental Nonprofit Context," Sustainability, MDPI, vol. 12(21), pages 1-11, October.
    3. Jonathan Meer, 2017. "Are overhead costs a good guide for charitable giving?," IZA World of Labor, Institute of Labor Economics (IZA), pages 329-329, January.
    4. Metzger, Laura & Günther, Isabel, 2019. "Making an impact? The relevance of information on aid effectiveness for charitable giving. A laboratory experiment," Journal of Development Economics, Elsevier, vol. 136(C), pages 18-33.
    5. Yuan Tian & Chiako Hung & Peter Frumkin, 2020. "Breaking the nonprofit starvation cycle? An experimental test," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(1).
    6. Bhavya Mohan & Ryan W. Buell & Leslie K. John, 2020. "Lifting the Veil: The Benefits of Cost Transparency," Marketing Science, INFORMS, vol. 39(6), pages 1105-1121, November.
    7. Portillo, Javier E. & Stinn, Joseph, 2018. "Overhead aversion: Do some types of overhead matter more than others?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 40-50.
    Full references (including those not matched with items on IDEAS)

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