Management of Financial Information in Charitable Organizations: The Case of Joint‐Cost Allocations

Abstract

Charities that use direct mailings or other activities that combine a public education effort with fundraising appeals must allocate the joint costs related to these activities to programs, fundraising, and administration. This study investigates whether charities use joint‐cost allocations to manage the program ratio—a widely used measure of spending efficiency. Using a hand‐collected dataset of 708 organization‐year observations from 1992 to 2000, we find evidence that charities use joint costs to mitigate changes in the program ratio.