The impact of external evaluation on donations to nonprofit organizations: Evidence from Korea

Abstract

This study examines whether and to what extent each stage of evaluation by a nonprofit agency impacts donation revenue. We test the effects of the Korean evaluation agency's scoring, selection, and ratings disclosure stages on nonprofit organizations' future donations. Using a sample of Korean nonprofit organizations for 2017–2018, we find that the governance and financial performance scores constructed by the agency in the scoring stage are positively correlated with nonprofit organizations' future donations. We also find a positive correlation between selection by the agency during the selection stage and future donations to the selected organizations. Finally, we show that the star ratings disclosed by the agency in the ratings disclosure stage do not impact future donations because ratings are predicted by the governance and financial performance scores. Our results imply that the scoring and selection stages have strong positive signal effects on donors, whereas the ratings disclosure stage does not. These findings suggest that to help donors make decisions about resource contributions, external nonprofit agencies must primarily focus on improving the scoring methodology and selection criteria.