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The size effect in the administration costs of charities

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  • Jurgen Kahler
  • Adrian Sargeant

Abstract

There has been considerable interest of late in the issue of the efficiency of voluntary organizations with authors such as Wise (1997) and Hyndman and McKillop (1999) noting appreciable economies of scale across the size categories investigated. In this article we develop this analysis, fitting different functional forms to the relationship between size and the ratio of administration costs to total expenditures (ACE). We show that an inverse function provides a simple, plausible and adequate representation of this relationship. We apply the estimated inverse function to derive a size-adjusted benchmark for the comparison of ACE ratios between charities. This adjusted benchmark can replace the traditional practice of comparing administration cost ratios to the sector average when assessing managerial efficiency.

Suggested Citation

  • Jurgen Kahler & Adrian Sargeant, 2002. "The size effect in the administration costs of charities," European Accounting Review, Taylor & Francis Journals, vol. 11(2), pages 215-243.
    • Handle: RePEc:taf:euract:v:11:y:2002:i:2:p:215-243
    DOI: 10.1080/0963818022000006870
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    1. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
    2. Spitzer, John J, 1982. "A Primer on Box-Cox Estimation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 307-313, May.
    3. Lau, Lawrence J., 1986. "Functional forms in econometric model building," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 26, pages 1515-1566, Elsevier.
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    Cited by:

    1. van der Heijden, Hans, 2013. "Small is beautiful? Financial efficiency of small fundraising charities," The British Accounting Review, Elsevier, vol. 45(1), pages 50-57.

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