An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Yaw M. Mensah
Rutgers University

Michael P. Schoderbek
Rutgers University

Robert H. Werner
Rutgers University

Abstract: Because administrators are frequently theorized to exhibit expense preference behavior, the prevailing wisdom is that administrative spending should be minimized in order to achieve greater organizational efficiency and effectiveness in non-profit institutions. We evaluate the validity of this wisdom by examining the relationship between the cost share of administrative spending and institutional cost efficiency and outcome effectiveness using data from New Jersey public schools. In both school district sub-samples examined we find that, contrary to conventional wisdom, the administrative cost ratio exhibits a positive relationship to cost efficiency. We also find that greater administrative cost shares are associated with higher test score performance in grade K-12 school districts. We conclude that legislative efforts to enforce mandatory limits on administrative cost shares may actually result in decreased cost efficiency and lower achievement scores in public schools.

Back to Session Listing

AAA Home Page