Nonprofit Governance and Cost Behaviors

We examine the impact of governance on cost behaviors in the nonprofit sector. Analyzing operations data of 419,350 nonprofit organization-years for the period 2014–2019, we find that better governed organizations are more likely to reduce spending in response to revenue declines consistent with less cost stickiness. We also find that better governance attenuates administrative cost stickiness in response to declines in both program and donation revenues, however, program spending is notably different. While better governed organizations exhibit less cost stickiness in program spending in response to program revenue declines, when faced with declines in donations these organizations are less likely to reduce program spending, consistent with external stakeholder preferences for program over administrative spending. Taken together, our findings provide support for the significant role nonprofit governance plays on cost behaviors, prompting organizations to maintain program spending while curbing administrative spending in response to declining public support.