NGOs operate as non-profit organizations, relying on donations and/or membership fees for funding. Nevertheless, they encounter growing competition for funding from diverse sources. As a result, there is a pressing need for these entities to enhance their accountability and performance assessment. At the program level, NGOs might utilize a variety of metrics to monitor and supervise local initiatives (Kaplan, 2001). Officially, in China, the term 'NGO' often called 'social organization,' includes all non-profit entities outside the state system (Ministry of Civil Affairs, 2013). These NGOs are essentially non-profit organizations not managed by the government, although many are government-organized NGOs (GONGOs). China's recent official classification categorizes all non-profit entities operating outside government management into three main groups: Social Units (SUs), Non-Governmental Non-Commercial Enterprises (NGNCEs), and Foundations. SUs encompass various associations, chambers of commerce, and federations. NGNCEs provide non-profit social or professional services, while Foundations focus on fundraising for charitable purposes and financially support SUs (Ministry of Civil Affairs, 2013).
Foundations are assuming a growing significance within China’s social security system, encompassing domains like education, environmental preservation, elderly care, child welfare, poverty alleviation, disability support, and disaster relief. Notably, Chinese foundations directed their primary investments in 2014 towards healthcare, education, and poverty alleviation (China Charity Information Center, 2015). Over the past three decades, China has experienced rapid growth in the foundation sector (Huang et al., 2014). The count of foundations in China has surged from a few in the 1980s to 4,317 by March 2015, comprising 1,493 public foundations (authorized for public fundraising) and 2,824 private foundations (not eligible for public fundraising) (China Foundation Center, 2015). Since 2010, the number of foundations in China has risen by 96.23%, with a total of 2,200 foundations reported (China Charity Information Center, 2015). However, this surge has led to increased competition among foundations in the fundraising market (Saxton et al., 2014). Since 2010, the number of foundations in China has risen by 96.23%, with a total of 2,200 foundations reported (China Charity Information Center, 2015). Simultaneously, the resource landscape for nonprofits exhibits market characteristics, given their competition with various nonprofits for grants, donations, and volunteer contributions (Venkatraman & Ramanujam, 1986). Hence, they are endeavoring to enhance efficiency to boost competitiveness.
Donors and grantors often take personal experiences and alignment between a nonprofit’s mission and their values into account when making donation choices, while resource providers and evaluators also advocate for more objective criteria to evaluate performance (Carman, 2009). In contrast, for-profit entities utilize a standard set of metrics that investors can employ to compare the efficiency of different firms, such as profitability rates or shareholder value (Venkatraman & Ramanujam, 1986). Therefore, efficiency is challenging to define in nonprofit organizations (e.g., foundations) compared to for-profit entities, where metrics like net income and return rates measure competitive output market efficiency but are unsuitable for non-profits (Nunamaker, 1985). Nonprofit organizations, with abstract mission-oriented goals, struggle with determining measurement criteria and methods for assessing mission achievement. Presently, the evaluation of nonprofit organizations' performance is a prominent issue, stemming from the complex nature of these entities and the constrained knowledge surrounding effective performance measurement methodologies (Thomson, 2010). Charity Navigator (CN) and other evaluators utilize interval-scaled rating systems that emphasize higher ratios, often reflected in the media's perspective. This approach drives organizations to strive for better scores due to external pressures (Westphal et al., 1997). Nonprofits employ ratios, mainly due to the need to respond to these external pressures (Eckerd & Moulton, 2011).
In the nonprofit sector, efficiency can be understood as achieving their mission with minimal costs. Yet, assessing efficiency remains complex in the nonprofit sector due to its service-oriented nature (Grieco et al., 2015). This challenge is compounded by factors such as the non-commercial character of nonprofits' operations, ambiguous terminology, and suboptimal cost-benefit ratios. Nonetheless, existing literature has explored different approaches to gauge nonprofit efficiency, encompassing metrics like the fundraising ratio, project ratio, allocative efficiency, and technical efficiency. The fundraising ratio assesses the proportion of fundraising expenditures to donation income, while the project ratio quantifies the resources directed towards projects aligned with the NGOs' missions over a given period (Coupet & Bernett, 2019). Allocative efficiency, often referred to as program efficiency, evaluates project-related expenditures in relation to the organization's overall income, and technical efficiency involves measuring administrative costs against total expenditures (Coupet & Bernett, 2019). However, there appears to be a gap in current research regarding the evaluation of nonprofit efficiency.
Moreover, Johnson and Ni (2015) studied how individual political connections affected the donation income of non-profit organizations. Li et al. (2017) explored the policy advocacy strategies of non-profits, specifically focusing on whether they were government-organized. In Zhang's (2018) research on policy advocacy, government-organized non-profits were treated similarly to non-profits with managers who were former government officials. To our knowledge, the existing works discussed how political actors interact with nonprofits, while the studies discussed the impacts of registration level are limited. In our study, we explore how the registration level within one specific subset of Chinese NGOs, namely foundations, influences their ability to secure private donations.
In addition, the state's stance on the nonprofit sector (e.g., nonprofit foundations) in China is characterized by a dual attitude, oscillating between a desire for resources, competencies, and knowledge from NGOs, as indicated by Teets (2009), and a perception of NGOs as potential adversaries to the party-state, as emphasized by Gaudreau and Cao (2015). This ambivalence reflects a delicate balance between empowering and controlling the nonprofit sector within the state's framework. To the best of our knowledge, there is a paucity of studies that have offered insights into the assessment of NGO efficiency within the Chinese context. To fill the gaps mentioned above, our study aims to address the following questions:
RQ 1: How does registration level influence nonprofit efficiency in China?
RQ 2: How does organizational income moderate the relationship between registration level and the efficiency of nonprofit foundations?
The subsequent sections of this article are organized as follows: Section 2 provides an overview of the relevant literature; Section 3 outlines the methodology employed in this study; Sections 4 and 5 showcase the empirical findings and the ensuing discussion; and Section 6 offers the conclusions drawn from this study's analysis.