Multiple Information Signals in the Market for Charitable Donations

47 Pages Posted: 14 Sep 2014

See all articles by Erica Harris

Erica Harris

Rutgers, The State University of New Jersey - Rutgers University, Camden

Daniel Neely

University of Wisconsin - Milwaukee

Date Written: September 9, 2014

Abstract

We find robust evidence which indicates that nonprofit donors incorporate third party rating information into their decision to give. Specifically, using a sample of over 3,800 unique nonprofit organizations rated by the three largest charity rating organizations and over 12,000 unrated control firms, we find that rated organizations have significantly higher direct donations than unrated charities. Given our ability to simultaneously test ratings from all three ratings agencies, we are also able to identify an incremental increase in donations accruing to organizations that receive multiple ratings. Additionally, although organizations that receive a positive assessment are associated with a higher level of public support relative to organizations receiving a negative assessment, our results indicate that both positive and negative rated organizations in fact receive a higher level of direct donations relative to unrated organizations. Finally, we find that the market values consistency across the three rating agencies, supporting the notion that noisy signals are valued less by donors.

Keywords: nonprofit, donations, ratings, signals

JEL Classification: L30, L31, L38, L39, M48

Suggested Citation

Harris, Erica and Neely, Daniel, Multiple Information Signals in the Market for Charitable Donations (September 9, 2014). Available at SSRN: https://ssrn.com/abstract=2495608 or http://dx.doi.org/10.2139/ssrn.2495608

Erica Harris (Contact Author)

Rutgers, The State University of New Jersey - Rutgers University, Camden ( email )

Camden, NJ 08102
United States

Daniel Neely

University of Wisconsin - Milwaukee ( email )

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

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