Effects of Financial Efficiency and Choice to Restrict Contributions on Individual Donations

Abstract

SYNOPSIS This study examines whether and how a nonprofit organization's financial efficiency and its solicitation type—namely, whether it allows donors the ability to restrict contributions to their preferred choices—influence individual donations. We find that a nonprofit organization's financial efficiency indirectly influences individual donations through its effect on donors' confidence. We also find that a nonprofit organization receives significantly more donations when it allows donors to restrict donations to their preferred choices than when it does not. This positive effect is greater when the organization reports low efficiency than when it reports high efficiency. Thus, allowing the restriction of donations not only influences individual donations directly, but also compensates for the effect of low efficiency on donations.

Nonprofit Outsourcing Patterns: Why Don’t Small NPOs Outsource More?

“…Sloan (2008) specifically found that a "pass" rating on the Better Business Bureau's WiseGiving Alliance increased donations; however, a "do not pass" did not decrease donations. Most of the studies agree that the mission of the organization and word-of-mouth feedback are more significant determinants for smaller donors when it comes to where their money goes, but Li et al (2012) found that the rankings available on the watchdog sites are useful to individual donors when distinguishing between NPOs with similar missions. Furthermore, Li et al (2012) found that donors are willing to give larger donations if they are allowed to specify how the money will be used.…”

“…Most of the studies agree that the mission of the organization and word-of-mouth feedback are more significant determinants for smaller donors when it comes to where their money goes, but Li et al (2012) found that the rankings available on the watchdog sites are useful to individual donors when distinguishing between NPOs with similar missions. Furthermore, Li et al (2012) found that donors are willing to give larger donations if they are allowed to specify how the money will be used. In the NPO world, organizations have found a lot of success in fundraising by promoting a particular program or cause.…”

“…While research is mixed, most studies do agree that rankings on "watchdog" websites do influence donors either directly or indirectly. Donors may chose not to give to organizations whose administrative costs are "too high," which drags down their rating on these sites (Li et al, 2012;Sloan, 2008;Szper & Prakash, 2011). Sloan (2008) specifically found that a "pass" rating on the Better Business Bureau's WiseGiving Alliance increased donations; however, a "do not pass" did not decrease donations.…”

“…So, despite the uneven evidence that the watchdog sites have significant influence on donor behavior, many NPOs focus on those rankings quite strongly. In fact, Li et al (2012) found that the focus on the rankings encourages NPOs to change their financial practices at the expense of the mission of the organization.…”

“…In the NPO world, organizations have found a lot of success in fundraising by promoting a particular program or cause. People are willing to give to help that cause, but not to pay for the people to run it (Li et al, 2012;Sloan, 2008).…”