Social Media, Signaling, and Donations: Testing the Financial Returns on Nonprofits’ Social Media Investment

Abstract

Social media outlets provide nonprofit organizations the opportunity of opening new communication and disclosure channels. Organizations must decide whether to set up these channels. They – and in turn their target audiences – must also decide how much to use social media. In this study we test a novel multi-level signaling theory framework to examine the relationship between social media investments and financial returns. Employing both cross-sectional and cross-temporal samples of 427 of the largest US non-hospital charities, we look at the association between donations and three dimensions of organizations’ social media efforts: 1) whether the organization has a social media presence, 2) how much the organization uses social media, and 3) the level of engagement of the organization’s audience. The findings support our conjecture that financial returns result from establishing a particular communication channel, from using that channel, and from having channel-specific audience engagement. We also consider how our three social media signaling dimensions condition the core donations demand variables, finding that social media substitutes for traditional fundraising expenditures. These results carry implications for the signaling and donation demand literatures and further our understanding of how these new media are changing the rules of donor engagement.

Keywords: donations, charities, nonprofits, signaling theory, social media

JEL Classification: M41, L30, D64, D60