Nonprofit and Voluntary Sector Quarterly, Ahead of Print. 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.

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