The Influence of Information Costs on Donor Decision Making

McDougle, Lindsey M.; Handy, Femida

doi:10.1002/nml.21105

Cited by 19 publications

(20 citation statements)

References 36 publications

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“…listed Cancer Fund of America as one of the nine worst‐run charities in 2009, because it “only spends 17 percent of its budget on program services” (Berr and Stockdale ). Such negative publicity may be especially harmful to nonprofits, as a recent survey found the news media to be the most frequently utilized information resource for potential donors seeking more information about nonprofits’ performance (McDougle and Handy ).…”

Section: Incentives For Managing the Program Ratiomentioning

confidence: 99%

Playing the Numbers Game

Garven

Hofmann

McSwain

2016

Nonprofit Mgmnt & Ldrshp

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Nonprofit organizations are often evaluated using the program ratio: the proportion of mission-related program expenses to total expenses. Nonprofit managers have incentives to manipulate the reporting of financial information to enhance the program ratio. This article reviews the scholarly literature on program ratio management in nonprofit organizations. Prior research has identified several motivations for and methods of program ratio management and provided limited evidence that it occurs. Researchers have explored the consequences of program ratio management and provided a list of factors mitigating such behaviors. The emerging consensus is that the program ratio is of limited usefulness in evaluating nonprofit performance. Keywords: program ratio; program ratio management; nonprofit organizations; earnings management; nonprofit performance measures EXTANT LITERATURE PROVIDES CONSIDERABLE EVIDENCE of many publicly traded, profi t-seeking corporations manipulating reported numbers to infl uence the perceptions and decisions of fi nancial statement users (Dechow and Skinner 2000;Graham, Harvey, and Rajgopal 2005;Habib and Hansen 2008;Healy and Wahlen 1999;Schipper 1989). However, for-profi t corporations are not alone in the practice of intervening in the fi nancial reporting process to present more favorable results. Nonprofi t managers also face pressures to manipulate fi nancial results. Although their success is not measured by profi t margins or rates of return, nonprofi t organizations are evaluated using fi nancial reports.Recently, the nonprofi t sector has grown substantially and has begun to attract more attention. Advances in technology, coupled with broader disclosure requirements by regulators, have increased access to nonprofit financial information. Internal Revenue Service (IRS) Form 990 annual reports are now publicly available through various websites. Th is increased access has resulted in heightened scrutiny of how nonprofi ts spend their money, especially in light of several high-profi le scandals in recent decades (Dimsdale 2009;Shepard and Miller 1994;Simross 1992). Th e role of charity "watchdog" agencies has grown, and donors have become more discriminating when disbursing their scarce resources. Competing with thousands of other nonprofi ts for resources and knowing they are commonly judged on their Nonprofi t Management & Leadership DOI: 10.1002/nml 402 GARVEN, HOFMANN, MCSWAINfi nancial results, some nonprofi t managers may resort to playing a numbers game to make the organization look as favorable as possible. Figure 1 describes the elements of this game.Although management of fi nancial results by profi t-seeking corporations tends to focus on net income, management of fi nancial results by nonprofi ts is more likely to focus on the program ratio (Khumawala, Parsons, and Gordon 2005)-the proportion of total expenses dedicated to providing programs that fulfi ll an organization's mission. Th e program ratio is typically computed as program expenses divided by total expenses. An alt...

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Section: Incentives For Managing the Program Ratiomentioning

confidence: 99%

Playing the Numbers Game

Garven

Hofmann

McSwain

2016

Nonprofit Mgmnt & Ldrshp

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“…Doing so requires that they gather good‐quality information about the actual or potential social impacts of their investments (Bugg‐Levine and Emerson ). However, this information is often difficult to collect and create (McDougle and Handy ), leaving investors unable to track and express the value of their grants and unaware of emerging models that exist to help measure this impact. Funded organizations are also frequently left feeling that the full value of their work is not documented because they lack important tools to communicate social impact.…”

Section: The Search For Social Impact Measuresmentioning

confidence: 99%

Measuring Social Return on Investment

Moody

Littlepage

Paydar

2015

Nonprofit Mgmnt & Ldrshp

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Strategic decision making and evaluation in philanthropic giving and social investment requires good‐quality information about the social impacts of that investment. One way to meet this need is by calculating a social return on investment (SROI) measure, akin to the return on investment (ROI) approach used in business analysis. Despite much buzz in the field, SROI measurements are rarely used, in part because of the complexity of the calculations but also because of a number of thorny and often expensive organizational challenges associated with implementing an SROI process. This article explores these implementation challenges by comparing four social venture organizations in the health care field—two in the Netherlands and two in the United States—that have utilized some sort of SROI measurement. We summarize the SROI process and identify the specific organizational challenges in each case. Lessons learned from this analysis include the value of process versus product and the importance of fitting the type of measurement to the organizational context. We conclude with a summary of best practices for organizations and social investors who might try to make effective use of SROI measures.

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“…Different types of information, for example on decision-making processes and policy effects instead of simple policy content, are expected to have different effects on citizen attitudes and behavior (Heald 2006). Also, information from different sources might have different effects on donation behavior (Li and McDougle 2017;McDougle and Handy 2014). Previous studies have touched upon effects of framing (Eckel, Grossman, and Johnston 2005), news content (de Wit, Bekkers, and Broese van Groenou 2017) and policy preferences (Horne, Van Slyke, and Johnson 2006) on donations, but more research will give better insights in the effects of different messages.…”

Section: Discussionmentioning

confidence: 99%

Can Charitable Donations Compensate for a Reduction in Government Funding? The Role of Information

Wit

Bekkers

2020

Public Administration Review

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Are private donors willing to replace cuts in government funding? The authors conducted a survey experiment (n = 2,458) to examine how information about government funding affected decisions to donate money to a large charitable organization in the Netherlands. Providing information about actual budget cuts increased the number of donors. Most new donors were recruited among respondents who had processed the information correctly, underlining the importance of effective communication. The magnitude of the information effect was stronger for citizens with lower levels of empathic concern, who are less likely to donate but can be converted into donors. The authors conclude that policy information shapes not only attitudes but also civic engagement outside the political sphere.

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The Influence of Information Costs on Donor Decision Making

Cited by 19 publications

References 36 publications

Playing the Numbers Game

Playing the Numbers Game

Measuring Social Return on Investment

Can Charitable Donations Compensate for a Reduction in Government Funding? The Role of Information

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