Does Government Funding Make Nonprofits Administratively Inefficient? Revisiting the Link

Jiahuan Lu, Jianzhi Zhao

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


There is widespread concern that government funding bureaucratizes nonprofits and causes them to be administratively inefficient. This study brings together contrasting streams of literature and hypothesizes a curvilinear relationship between government funding and nonprofits’ administrative efficiency. Using a longitudinal dataset of U.S. Agency for International Development (USAID)-registered nonprofits, we find evidence for this nonlinear effect. In particular, as the proportion of a nonprofit’s government funding increases, its reported administrative expense ratio will initially increase, but after the proportion reaches one third to two thirds of total revenue (depending on the estimation strategy used), further increases in government funding reduce the reported administrative expense ratio. Nonprofits may maintain a favorable level of operating efficiency with either a low level or a high level of dependence on government funding. Our work adds to the literature on government–nonprofit funding relationship and offers practical implications for nonprofit management.

Original languageAmerican English
Pages (from-to)1143-1161
Number of pages19
JournalNonprofit and Voluntary Sector Quarterly
Issue number6
StatePublished - Dec 1 2019

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)


  • administrative efficiency
  • administrative expense ratio
  • government funding
  • government–nonprofit relations


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