Influencing Donors with the Numbers, a Colloquium at ARNOVA 2009 Page 15

Handout for Colloquium (with editions thru August 2010) Influencing Donors with the Numbers: The use of ratings and ratios

ARNOVA’s 38th Annual Conference Cleveland, Ohio November 19-21, 2009

Facilitator and editor for handout: Teresa Gordon, University of Idaho, Moscow, ID, [email protected]

Moderator: Daniel Tinkelman, Hofstra University, Hempstead, NY [email protected]

Panel Members: Linda Parsons, University of Alabama, Tuscaloosa, AL [email protected]

Andrea Roberts, University of Virginia, Charlottesville, VA [email protected]

Daniel Neely, University of Wisconsin-Milwaukee, Milwaukee, WI [email protected]

Evelyn McDowell, Rider University, Lawrenceville, NJ [email protected]

General Description: For better or worse, donors appear to be influenced by program expense ratios and ratings that are partially based on financial ratios. This colloquium is intended to facilitate discussion of both the state of knowledge and what to do with what we know: education of donors, better reporting by charities, improved tools for evaluating nonprofit organizations, additional research, etc. Following the 5-10 minute presentations, the moderator will open discussion among the four presenters and the audience. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 2

Influencing Donors with the Numbers ANNOTATED BIBLIOGRAPHY

1. Studies on Aggregate Giving using Archival Data

A number of studies analyzed the “price” of giving and fundraising expenses and generally established that aggregate giving is positively associated with fundraising expenses and negatively associated with price (usually computed as 1 divided by the program expense ratio). Other variables included organization age and size. Many authors also looked for a crowding out effect for revenues from government sources.

Studies using US data:  Weisbrod and Dominguez (1986) uses averaged 1973-1976 IRS data  Steinberg (1986) tests a first difference model using data from 1974-1976 returns  Tinkelman (1998) uses audited data from NY Form 497 for period 1990-1992  Tinkelman (1999) uses 1992-1994 data from New York State regulatory filings  Okten and Weisbrod (2000) used 1982-1994 SOI tapes from IRS  Marudas (2004) uses 1985-1994 data on large charities to examine relationship between wealth and efficiency on donations  See also Jacobs and Marudas (2009), Tinkelman and Mankaney (2007), Frumkin and Kim (2001) and Greenlee and Brown (1999) listed below since their studies focus specifically on administrative costs

Similar studies in other countries  Khanna and Sandler (2006), Khanna, Posnett & Sandler (1995) and Posnett and Sandler (1989) use data from the UK  Callen (1994) uses data from Canada  Wong, Chua, et al. (1998) use data from Singapore  Marcuello and Salas (2001) use data from Spain

See also studies that focus on fundraising:  Peloza and Steel (2005) provides a meta-analysis on price elasticity with respect to the tax- deductibility of donations.  Tinkelman (2004) uses IRS data from 1982-1994 to estimate fundraising elasticities and thereby infer the fundraising strategies of nonprofit managers  Jacobs and Marudas (2006) examines the Nonprofit Times 100 from 2000-2002 to estimate effect of fundraising expense on net donations  Marudas & Jacobs (2007) looks at problems related to insufficient fundraising using a sample of 606 US arts organizations for 2000-2001.  Baber, Roberts &Visvanathan (2001) compare program spending ratios for strategic choices with respect to accessing donated resources.

See also sections on charity ratings and voluntary disclosures since many of those studies use similar models and control for price, age, size, fundraising expenses, etc. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 3

Studies that include Administrative (Overhead) Costs in Models of Aggregate Giving

Jacobs, F. A. and N. P. Marudas (2009). "The Combined Effect of Donation Price and Administrative Inefficiency on Donations to US Nonprofit Organizations." Financial Accountability & Management 25(1): 33-53. This study examines the impact of administrative inefficiency and donation price on donations to US NPOs using a better-specified model and industry-specific samples. …[Prior research studies do not test] donation price and administrative inefficiency in one model and only two test industry-specific samples of NPOs. We find that misspecifying the model by including only one of these two inefficiency measures creates substantial bias and the effect of administrative inefficiency on donations varies substantially across industries. Administrative inefficiency has a significantly negative effect on donations to NPOs in the full sample and the philanthropy sample, but no significant effect on donations to NPOs in the arts, education, health, or human services samples. Furthermore, donation price has a significantly negative effect on donations to NPOs in the full sample and the education, health and human services samples, but not in the arts or philanthropy samples. Results are also reported for the other variables in the model – government support, program service revenue, fundraising and organizational age, wealth and size. [Article includes a concise table showing variables used in prior research. Uses IRS SOI data from 2000 and 2001.]

Tinkelman, D. and K. Mankaney (2007). "When is Administrative Efficiency Associated With Charitable Donations?" Nonprofit and Voluntary Sector Quarterly 36(1): 41-64. Whether accounting measures of administrative efficiency affect donations is an important issue for nonprofit managers. Prior research is inconclusive. Some studies find a significant negative relation, whereas others find no significant relation. The authors investigate a variety of reasons for the prior divergent results. The evidence is consistent with donors reducing contributions to organizations reporting higher administrative expense ratios when the ratios are presumably most relevant and reliable. The authors suggest that certain prior studies failed to find significant associations largely because their samples contained many organizations for which the administrative ratios were unreliable or not helpful for donor needs. Model specification issues also affect prior studies but are less critical than sample composition. When the authors replicate prior studies on samples containing established, donation-dependent organizations with nontrivial amounts of fund-raising and administrative expenses, they generally detect a significant negative association. [Uses NCCS/Guidestar database for 2000 & 2001 as well as older datasets from New York State regulatory filings (1992-1994) and IRS SOI data for 1982-1994.]

Other studies that included administrative costs as an independent variable (instead of or in addition to price and fundraising costs) include:  Frumkin and Kim (2001) uses IRS [SOI] data from 1985-1995  Greenlee and Brown (1999) uses data from Pennsylvania regulatory filings from 1991-94

See also Kähler and Sargeant (2002). Their study shows economies of scale with respect to administrative costs of large UK charities. 2. Theoretical Research & Literature Reviews

Gordon, T.P. and S.B. Khumawala. 1999. The demand for not-for-profit financial statements: A model of individual giving. Journal of Accounting Literature 18: 31-56. The authors note that individuals make charitable gifts for a variety of reasons, many of which do not involve analyzing financial information or organizational performance. They note there are Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 4

several contexts in which the value of financial information as a tool for making a giving decision increases. Once instance is when their religious conviction requires them to “give generously but prudently” (a Gregorian-Augustinian principle) rather than when they believe “charity, like virtue, is its own reward” (Cotton Mather’s Bonifacius principle). They also state that the importance of financial information increases as the distance between the donor and the organization and its beneficiaries increases (when the nonprofit acts as a broker between the donor and the beneficiary).

Sargeant, A. and L. Woodliffe "Gift giving: an interdisciplinary review." International Journal of Nonprofit and Voluntary Sector Marketing 12(4): 275 - 307. The issue of why individuals choose to support charity has been the focus of considerable research in the disciplines of economics, psychology, social psychology, sociology, anthropology and more recently, management and marketing. This paper draws together extant work, developing a content model of giving behavior that fundraisers may use to inform their professional practice. A number of specific propositions are developed from the literature to assist in this goal. The paper provides summary tables of existing empirical studies categorized by the dimensions of the model, explores ambiguity in research findings, and concludes by highlighting opportunities for further research

See also Parsons (2003) literature review on the usefulness of accounting information to donors 3. Experimental Research on Giving

Eckel, C.C. and P.J. Grossman. 1996. Altruism in anonymous dictator games. Games and Economic Behavior 16: 181-191. In order to determine if giving decisions are impacted by the degree to which a recipient is “deserving,” the authors employ a dictator game in two experiments. The first experiment is “double-blind” so that the donors are unknown to the recipients and vice versa. In the second, the donor knows the recipient is the American Red Cross, a reputable charitable organization. When the recipient was known, the participants were more likely to give and the average gift was larger than gifts to the unknown recipient. Based on the results, donors are more likely to give and are willing to give more money on average when the recipient is viewed as “deserving.”

Church, B.K. and L.M. Parsons. Performance information and charitable giving: Experimental evidence. Working paper at Georgia Tech and the University of Alabama. Using a dictator game, this study examines whether performance information can positively influence the likelihood that a potential donor will make a donation. Participants were given one of three requests from a charitable organization. All requests included a description of the organization and its mission, and the first group saw no additional information. The second group was given performance measures that included a high program ratio and information about the amount of money the organization saved its beneficiaries through its programs. The third group also received performance measures, but the program ratio was lower and the amount of money the organization was able to save its beneficiaries was much less. When evaluating the performance of the organization, individuals that saw high performance measures gave the organization a much higher rating than others who saw lower or no performance measures. However, when it came to making a charitable donation, the amount of money donated was the same when performance measures were present, whether they were high or not. Donations from the group with no performance measures was significantly less than from the other two groups. These findings indicate performance information can play a role in charitable giving decisions by individuals. Further, providing nonfinancial performance information can mitigate the focus on the program ratio. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 5

Buchheit, S. and L.M. Parsons. 2006. An experimental investigation of accounting information’s influence on the individual giving process. Journal of Accounting and Public Policy 25: 666-686. The authors use an experiment to determine whether reports of nonfinancial information impact giving decisions. An experiment is designed so that half the participants were provided with a description of the programs and a narrative about the achievements during the year. When potential donors had information about the success of programs, they evaluated the performance of the organization more highly and claimed they were more likely to make a charitable contribution to a nonprofit that provided this kind of nonfinancial report. However, when asked to forgo a token prize in order to provide a cash donation of equal value to the charity, there was no difference between the groups. The results indicate that even though donors claim they want information about program achievements, having this type of information does not increase the likelihood of a donation.

Parsons, L.M. 2007. The impact of financial information and voluntary disclosures on contributions to not-for-profit organizations. Behavioral Research in Accounting 19: 179-196. This study uses a field experiment that varies the amount and type of information included in an actual fundraising appeal from a real charitable organization. Using a 2 x 2 experiment design, the author randomly includes a financial measurement of performance (the program, fundraising and administrative ratios) and nonfinancial indicators of performance (number of families served, satisfaction ratings of beneficiaries, value of volunteer services received). Only the financial information increased giving rates, and then only among those were had previously given to the organization. New donors were no more likely to give and didn’t give more on average when they had performance information from the organization.

Li, W. and E. McDowell. The influence of financial efficiency and affect on individual donors’ donation decisions. Working paper at Kent State University and Rider University. The study examines how a nonprofit organization’s financial efficiency and donors’ affective reactions influence individual donations. Using a modified dictator game in an experiment, we find that donors’ affective reactions can overshadow the effect of financial efficiency on individual donations. As a result, individual donors donate more to an organization that invokes greater affective reactions, even though the organization has very low financial efficiency. The results demonstrate that donors’ affective reactions are a powerful decision factor, and thus need to be considered in the debate about nonprofit organization’s financial efficiency and individual donations.

McDowell, Evelyn, W. Li, and P. Smith. Investigating Donor Information Search and the Importance of Nonprofit Financial Efficiency. Working paper at Kent State University, Rider University, and University of Texas, San Antonio. In an experiment, potential donors used a computer to read information about two organizations with similar missions. Donors could read basic information about the charities, a description of the mission of the organizations, some data about goals and accomplishments, and financial information. Most participants made a decision without even reading the readily available program ratio, and looked most often to information about mission and goals before making a giving decision. The results provide evidence that the importance of financial information in the decision process depends on the context in which it is provided. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 6

McDowell, Evelyn and T. Fogarty. “The Effect of Nonprofit Organization’s Efficiency Level and Reciprocity on Donor Judgment and Demand for Information,” Working Paper at Rider University and Case Western Reserve University. There is increasing evidence that many individual donors do not demand financial information prior to making contributions. A recent study found that only a minority of individual donors request and use financial information. Another study reported that few donors look up information about charities before or after donating. To date, few studies have investigated the underlying reasons donors may or may not access or demand financial data. Using the Gordon and Khumawala’s (G&K) framework of the model of individual giving (Gordon and Khumawala 1999) as a basis for our expectations, this study seeks to provide an explanation for why donors may not seek information and is among the first studies to monitor donor’s usage of data as they make their contribution decisions. We examine the effect of reciprocity on donor’s decision to give and the decision to view financial and non-financial information. Overall, the findings indicate that reciprocity increases donor giving and, contrary to expectations, reciprocity increases the demand for information.

See also Khumawala, Parsons & Gordon (2005) which examined whether donors could untangle joint cost allocations as part of a decision to give and Khumawala & Gordon (1997) which examined the types of information donors used to make a hypothetical donation. 4. Do Donors Use Voluntary Disclosures?

Khumawala, Saleha B., Daniel G. Neely and Teresa P. Gordon. “The Impact of Voluntary Disclosures on Charitable Giving,” Working Paper at University of Houston, University of Wisconsin at Milwaukee, and University of Idaho. Donations have served as a surrogate for studying the demand for not-for-profit goods and services. Two countervailing forces have been hypothesized: Fundraising expenses serve as an information or advertising role and should increase future donations; conversely, too much spending on fundraising and administrative overhead is associated with too little spending on the production and delivery of charitable goods and services. This increases the price of giving and lowers demand. Prior research has indicated that both factors are relevant for predicting future revenue from contributions. Not-for-profit organizations can make voluntary disclosures useful to donors through annual reports that describe their accomplishments and thank donors for their support. In this paper, we consider whether such voluntary disclosures may also influence future contributions when added to the model first tested by Weisbrod and Dominguez (1986). We find that these additional disclosures are significant in predicting donations received in the following year. Donors may be influenced by either the content or the increased level of transparency.

Saxton G.D., D.G.Neely, and C. Guo. 2009. Web Disclosure and the Market for Charitable Contributions. Working Paper at University at Buffalo SUNY, University of Wisconsin – Milwaukee, and the University of Georgia. Not-for-profit organizations face intense competition in the market for charitable contributions. Whether to gain competitive advantage in this market or merely to compete, more and more of these organizations are implementing substantive Internet disclosure and reporting regimes. We posit that the disclosure of financial and performance information inherent in these regimes provides additional relevant information, and thus has a positive impact on the receipt of charitable contributions. We test our hypotheses on a sample of 117 US community foundations by building on the well established “economic model of giving” (Weisbrod and Dominguez, 1986), which has donations serving as the proxy for demand. Our central research question thus becomes: Are donors willing to “pay” for Web disclosure? Results indicate a positive relationship between the level of charitable contributions and the amount of financial- and performance- Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 7

related disclosure provided by an organization on its Website, with the financial element tending to dominate the performance element. 5. Studies involving Ratings by Charity Monitoring Groups

For an overview of rating systems, see Lowell, Trelstad, and Meehan (2005). Gordon, T. P., C. L. Knock and D. G. Neely. 2009. The Role of Rating Agencies in the Market for Charitable Contributions: An Empirical Test. Journal of Accounting and Public Policy. 28 (6): 469- 484. This study examines whether the zero- to four-star ratings provided by Charity Navigator have additional information content for donors. Charity Navigator was selected because its rating system relies almost exclusively on the 990 returns and presumably adds value by incorporating peer-group expectations for various ratios and by presenting straightforward and concise data. Using a random sample of 405 charities rated by Charity Navigator, our results suggest that rating changes do impact contributions. Positive rating changes were associated with an increase in contributions and organizations with a decline in rating were associated with decreased contributions. These effects were in addition to what would be predicted using an efficiency ratio commonly computed from Form 990 accounting data and other control variables.

Chen, G. (2009). "Does meeting standards affect charitable giving? An empirical study of New York metropolitan area charities." Nonprofit Management and Leadership 19(3): 349-365. This research attempts to empirically investigate the effects of standards on public giving, controlling for factors that have documented effects on donations. Specifically, it regresses public support on the extent to which local nonprofits meet the standards of the Better Business Bureau Serving Metropolitan New York, Mid-Hudson and Long Island Regions, controlling for organization size, board size, service category, government funding, fundraising expense, and giving price. The study found that BBB standards have a positive effect on giving behavior. Meeting BBB standards is associated with higher levels of public support. Participating in assessment programs and striving to meet the standards are recommended for nonprofits seeking to improve funding through charitable contributions. Further study that extends the search for the mechanism that links meeting standards to improved donations is recommended.

Sloan, M. F. (2008). "The Effects of Nonprofit Accountability Ratings on Donor Behavior." Nonprofit and Voluntary Sector Quarterly: 38(2), 220-236. This article tests a model for estimating the effect of ratings systems on donor behavior within the theoretical context of information asymmetry. Hypotheses are tested with nonprofit ratings for New York charities from the Better Business Bureau's Wise Giving Alliance to estimate the effect of accountability ratings on the amount of contributions an organization receives. Results indicate that the Wise Giving Alliance "pass" ratings have a statistically significant effect on the contributions received; however, "did not pass" ratings are nonsignificant.

See also  Tinkelman (1998) another study that used BBB pass/fail rating in a study of aggregate giving.  Bhattacharya & Tinkelman (2009) did not find any widespread manipulation of functional expenses around the date of change in BBB standards.  Silvergleid (2003) examined American Institute of Philanthropy ratings.  Cnaan et al. (2009 working paper reports on donor usage of internet sources in making donation Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 8

6. Managing the Numbers – Do Managers Cook the Books?

Jones, C. L. and A. A. Roberts (2006). "Management of Financial Information in Charitable Organizations: The Case of Joint-Cost Allocations." Accounting Review 81(1): 159-178. Charities that use direct mailings or other activities that combine a public education effort with fundraising appeals must allocate the joint costs related to these activities to programs, fundraising, and administration. This study investigates whether charities use joint-cost allocations to manage the program ratio (a widely used measure of spending efficiency). Using a hand-collected dataset of 708 organization-year observations from 1992 to 2000, the study provides evidence that charities use joint costs to mitigate changes in the program ratio.

7. What Numbers Should Donors Use? and Consequences of Reliance on Ratios

A number of studies are critical of the use of ratings and other ratios derived from accounting information. This is not a complete list but will serve as an introduction.

 Steinberg (1986) says small donors (but not the government) need not worry about fundraising expense. Points out that fundraising ratios are averages but a proper analysis would focus on marginal fundraising costs. See also Tinkelman (2006) and Bowman (2006),  Pallotta (2008) makes the case that over-reliance on one ratio can actually reduce charitable output.  Tinkelman and Donabedian (2007) recommend an alternate scheme to evaluate efficiency of charitable organizations. See also Tinkelman and Donabedian (2009) for a DuPont-style analysis framework.  Tinkelman (2009) is a case study that shows unintended consequences of expense ratio guidelines.

See also Ritchie & Kolodinsky (2003) for a factor analysis that groups financial performance measures. See also Greenlee and Bukovinsky (1998) for a description of the meaning of various financial ratios. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 9

References

“Bold” references have Abstracts by topic in the discussion above Baber, W. R., Roberts, A. A., and G. Visvanathan. 2001. Charitable Organizations’ Strategies and Program- Spending Ratios. Accounting Horizons. 15 (4): 329-343. Bhattacharya, R. & Tinkelman, D. (2009). How Tough are Better Business Bureau / Wise Giving Alliance Financial Standards? Nonprofit and Voluntary Sector Quarterly Volume 38, No. 3 June 2009. Bowman, Woods (2006). “Should Donors Care About Overhead Costs? Do They Care?” Nonprofit and Voluntary Sector Quarterly, Vol. 35, No. 2, 288-310. Buchheit, S. and L.M. Parsons. 2006. An experimental investigation of accounting information’s influence on the individual giving process. Journal of Accounting and Public Policy 25: 666-686. Callen, J. L. (1994). "Money donations, volunteering and organizational efficiency." Journal of Productivity Analysis 67(3): 215-228. Chen, G. 2009. Does Meeting Standards Affect Charitable Giving? An Empirical Study of New York Metropolitan Area Charities. Nonprofit Management and Leadership 19 (3): 349-365. Church, B.K. and L.M. Parsons. Performance information and charitable giving: Experimental evidence. Working paper at Georgia Tech and the University of Alabama. Cnaan, Ram, et al. Nonprofit Watchdogs: How Useful Are They to the Average Donor? Working paper, University of Pennsylvania Eckel, C.C. and P.J. Grossman. 1996. Altruism in anonymous dictator games. Games and Economic Behavior 16: 181-191. Frumkin, P. and M. T. Kim (2001). "Strategic Positioning and the Financing of Nonprofit Organizations: Is Efficiency Rewarded in the Contributions Marketplace?" Public Administration Review 61(3): 266-275. Gordon, T. P., C. L. Knock and D. G. Neely. 2009. The Role of Rating Agencies in the Market for Charitable Contributions: An Empirical Test. Journal of Accounting and Public Policy. 28 (6): 469-484. Gordon, T. P., and S. B. Khumawala. (1999). The Demand for Nonprofit Financial Statements: A Model of Individual Giving. Journal of Accounting Literature 18:31-56. Greenlee, J.S. and K.L. Brown (1999). The Impact of Accounting Information on Contributions to Charitable Organizations, Research in Accounting Regulation, Vol. 13, pp. 111-125. Greenlee, J.S., and D. Bukovinsky. (1998). Financial Ratios for Use in the Analytical Review of Charitable Organizations. Ohio CPA Journal. 57 (1): 32-38. Hager, M. A. (2003). Current practices in allocation of fundraising expenditures. New Directions for Philanthropic Fundraising 2003 (41):39-52. [available at http://nccsdataweb.urban.org/FAQ/index.php?category=43] Hager, M. A., Pollak, T., and P. Rooney. (2001). Variations in Overhead and Fundraising Efficiency Measures: The Influence of Size, Age, and Subsector. Overhead Cost Study Working Paper, presented (revised title) at the 2000 AFP and 2001 ARNOVA meetings. Published on http://nccsdataweb.urban.org/FAQ/index.php? category=43. [See also the 5 “briefs” from the cost study which are available at the same site.] Hager, M. A., and J. Greenlee. (2004). How important is a nonprofit’s bottom line? The uses and abuses of financial data. In In Search of the Nonprofit Sector, edited by P. Frumkin, Imber, J.B. New Brunswick, NJ: Transaction, 85-96. Jacobs, F. A. and N. P. Marudas (2009). "The Combined Effect of Donation Price and Administrative Inefficiency on Donations to US Nonprofit Organizations." Financial Accountability & Management 25(1): 33-53. Jacobs, F. A. and N. P. Marudas (2006). "Excessive, optimal, and insufficient fundraising among the Nonprofit Times 100." International Journal of Nonprofit & Voluntary Sector Marketing 11(2): 105-114. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 10

Jones, C. L., and A. A. Roberts. (2006). Management of Financial Information in Charitable Organizations: The Case of Joint-Cost Allocations. Accounting Review 81 (1):159-178. Kähler, J. and A. Sargeant (2002). "The size effect in the administration costs of charities." European Accounting Review 11(2): 215-243. Keating, E. K., L. M. Parsons, and A. A. Roberts. (2008). Misreporting Fundraising: How Do Nonprofit Organizations Account for Telemarketing Campaigns? Accounting Review 83 (2):417-446. Khanna, J., J. Posnett, and T. Sandler. (1995). Charity donations in the UK: New evidence based on panel data. Journal of Public Economics 56 (2):257-272. Khanna, J. and T. Sandler (2000). "Partners in giving: The crowding-in effects of UK government grants." European Economic Review 44(8): 1543-1556. Khumawala, Saleha B., Daniel G. Neely and Teresa P. Gordon. “The Impact of Voluntary Disclosures on Charitable Giving,” Working Paper at University of Houston, University of Wisconsin - Milwaukee, and University of Idaho. Khumawala, S. B., and T. P. Gordon. (1997). Bridging the Credibility of GAAP: Individual Donors and the New Accounting Standards for Nonprofit Organizations. Accounting Horizons 11 (3):45-68. Khumawala, S. B., L. M. Parsons, and T. P. Gordon. (2005). Assessing the Quality of Not-For-Profit Efficiency Ratios: Do Donors Use Joint Cost Allocation Disclosures? Journal of Accounting, Auditing & Finance 20 (3):287-309. Krishman, R., M. H. Yetman, and R. J. Yetman. (2006). Expense Misreporting in Nonprofit Organizations. Accounting Review 81 (2):399-420. Li, W. and E. McDowell. The influence of financial efficiency and affect on individual donors’ donation decisions. Working paper at Kent State University and Rider University. Lowell, S., B. Trelstad, and B. Meehan. (2005). The Ratings Game: Evaluating the three groups that rate the charities. Stanford Social Innovation Review. Summer 38-45. Marcuello, C. and V. Salas (2001). "Nonprofit Organizations, Monopolistic Competition, and Private Donations: Evidence from Spain." Public Finance Review 29(3): 183. Marudas, Nicholas P. (2004). Effects of Nonprofit Organization Wealth and Efficiency on Private Donations to Large Nonprofit Organizations. Research in Government and Nonprofit Accounting, Vol. 11, 71-91. Marudas, N. P. and F. A. Jacobs (2004). "Determinants of Charitable Donations to Large U.S. Higher Education, Hospital, and Scientific Research NPOs: New Evidence from Panel Data." Voluntas: International Journal of Voluntary and Nonprofit Organizations 15(2): 157-179. Marudas, N. P. and F. A. Jacobs (2007). "The extent of excessive or insufficient fundraising among US arts organizations and the effect of organizational efficiency on donations to US arts organizations." International Journal of Nonprofit & Voluntary Sector Marketing 12(3): 267-273. McDowell, Evelyn, W. Li, and P. Smith. Investigating Donor Information Search and the Importance of Nonprofit Financial Efficiency. Working paper at Kent State University, Rider University, and University of Texas, San Antonio. McDowell, Evelyn and T. Fogarty. “The Effect of Nonprofit Organization’s Efficiency Level and Reciprocity on Donor Judgment and Demand for Information,” Working Paper at Rider University and Case Western Reserve University. Okten, C. and B. A. Weisbrod (2000). "Determinants of donations in private nonprofit markets." Journal of Public Economics 75(2): 255. Parsons, L. M. (2003). Is accounting information from nonprofit organizations useful to donors? A review of charitable giving and value-relevance. Journal of Accounting Literature 22:104-129. Parsons, L. M. (2007). The Impact of Financial Information and Voluntary Disclosures on Contributions to Not-For-Profit Organizations. Behavioral Research in Accounting 19:179-196. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 11

Parsons, Linda, Charlotte Pryor, and Andrea A. Roberts. “The Impact of Accounting Discretion and Strategic Decisions on Reported Administrative Spending: Evidence from a Survey of Nonprofit Executive Directors,” Working paper at the University of Alabama, University of Maine, University of Virginia. Peloza, J. and P. Steel (2005). "The Price Elasticities of Charitable Contributions: A Meta-Analysis." Journal of Public Policy & Marketing 24(2): 260-272. Pollatta, Daniel. (2008). Uncharitable: How Restraints on Nonprofits Undermine Their Potential. Tufts University Press. Posnett, J. and T. Sandler (1989). "Demand for charity donations in private non-profit markets : The case of the U.K." Journal of Public Economics 40(2): 187-200. Ritchie, W. J., and R. W. Kolodinsky. (2003). Nonprofit Organization Financial Performance Measurement: An Evaluation of New and Existing Financial Performance Measures. Nonprofit Management & Leadership 13 (4):367. Sargeant, A. and L. Woodliffe "Gift giving: an interdisciplinary review." International Journal of Nonprofit and Voluntary Sector Marketing 12(4): 275 - 307. Saxton G.D., D.G.Neely, and C. Guo. 2009. Web Disclosure and the Market for Charitable Contributions. Working Paper at University at Buffalo SUNY, University of Wisconsin – Milwaukee, and the University of Georgia. Silvergleid, J. E. (2003). "Effects of watchdog organizations on the social capital market." New Directions for Philanthropic Fundraising 2003(41): 7-26. Sloan, M.F. 2009. The effects of nonprofit accountability ratings on donor behavior. Nonprofit and Voluntary Sector Quarterly 38 (2): 220-236. Steinberg, R. (1986). The revealed objective functions of nonprofit firms. RAND Journal of Economics 17 (4), 508- 526. Steinberg, R. (1986). Should Donors Care About Fundraising? in The Economics of Nonprofit Organizations – Studies in Structure and Policy, ed. S. Rose-Ackerman, 346-364. New York: Oxford University. Tinkelman, D. (1998). "Differences in Sensitivity of Financial Statement Users to Joint Cost Allocations: The Case of Nonprofit Organizations." Journal of Accounting, Auditing & Finance 13(4): 377-393. Tinkelman, D. (1999). Factors affecting the relation between donations to not-for-profit organizations and an efficiency ratio. Research in Government and Nonprofit Accounting 10:135-161. Tinkelman, D. (2004). "Using nonprofit organization-level financial data to infer managers' fund-raising strategies." Journal of Public Economics 88(9/10): 2181-2192. Tinkelman, D. (2006). The Decision-Usefulness of Nonprofit Fundraising Ratios: Some Contrary Evidence. Journal of Accounting, Auditing & Finance 21 (4):441-462. . Tinkelman, D. (2009). Unintended Consequences of Expense Ratio Guidelines: The Avon Breast Cancer Walks. Journal of Accounting and Public Policy. Volume 28 (6) 485-494. . Tinkelman, D., and B. Donabedian. (2007). Street lamps, alleys, ratio analysis, and nonprofit organizations. Nonprofit Management & Leadership 18 (1):5-18. Tinkelman, D. & Donabedian, B. (2009). Decomposing the Elements of Nonprofit Organizational Performance. Research in Government and Nonprofit Accounting. Volume 12, 75-98. Tinkelman, D. and K. Mankaney (2007). "When is Administrative Efficiency Associated With Charitable Donations?" Nonprofit and Voluntary Sector Quarterly 36(1): 41-64. Weisbrod, B. A., and N. D. Dominguez. (1986). Demand for collective goods in private nonprofit markets: Can fundraising expenditures help? Journal of Public Economics 30 (1):83-96. . Wong, C. M., V. C. H. Chua, et al. (1998). "Contributions to charitable organizations in a developing country: The case of Singapore." International Journal of Social Economics 25(1): 25. Influencing Donors with the Numbers, A Colloquium at ARNOVA 2009 Page 12

Yetman, Michelle H. 2009. Economic Consequences of Expense Misreporting in Nonprofit Organizations, Working Paper, University of California – Davis, presented at 2009 AAA meeting. Yetman, M. H. and R. J. Yetman, 2009. Accounting Choice and Multiple Objectives in Nonprofit Organizations, Working Paper, University of California – Davis, presented at 2009 AAA meeting.

Many of the “non-bold” references are included in the complete list of abstracts posted online at http://www.cbe.uidaho.edu/tgordon or available by request from one of the panel members. Other Abstracts not included in Handout Provided at 2009 ARNOVA colloquia: Influencing Donors with the Numbers (in alphabetical order by authors)

Baber, W. R., A. A. Roberts, G. Visvanathan. (2001). "Charitable Organizations' Strategies and Program- Spending Ratios." Accounting Horizons 15(4): 329-343. Analysis in this study demonstrates how differences in strategy can be incorporated into evaluations and comparisons of financial statements of charitable organizations. The ratio of program spending to total spending, a metric commonly used in practice to evaluate charities, is the focus of the analysis. Our approach involves classifying charities according to how they access markets for donated resources and then using regression analysis to predict an organization's program-spending ratio, given the organization's strategic choice, size, and charitable objective. We then compare the predicted ratio to the organization's actual ratio to identify candidates for further review and investigation. In doing so, this paper illustrates how considering strategic choice enhances the analysis of financial statements of charitable organizations and informs assessments of organization effectiveness.

Bennett, R., Savani, S., 2003. Predicting the accuracy of public perceptions of charity performance. Journal of Targeting, Measurement and Analysis for Marketing 11 (4), 326-342. Authors found that attitudes about a charity’s performance affected the ability of a charity to generate funds through donations, grants, etc. Specifically, a charity that is perceived as inefficient has a harder time increasing donations. They showed that if an organization provides donors with the proportion of fundraising expense, donors are better able to make educated decisions.

Bowman, Woods (2006). “Should Donors Care About Overhead Costs? Do They Care?” Nonprofit and Voluntary Sector Quarterly, Vol. 35, No. 2, 288-310. This article reports on a theory-based experiment to determine whether there is an observable relationship between changes in charitable giving to an organization and changes in the proportion of revenue it spends on administration and fund-raising ("overhead ratio"). This article argues that overhead ratios are meaningless for comparing organizations, but changes in overhead ratios communicate useful, though incomplete, information to donors. Empirical studies have used organization-level data with mixed results. This research improves on past work by using donor- level information on federal employees in the Chicago area who donate through the Combined Federal Campaign with ready access to information on the overhead ratios of all participating charities. Donations are aggregated by charity and compared over time. Statistical tests give evidence of an inverse relationship between changes in overhead ratios and changes in giving that are robust with respect to model specification; however, collectively other factors are much more important.

Callen, J. L. (1994). "Money donations, volunteering and organizational efficiency." Journal of Productivity Analysis 67(3): 215-228. The purpose of this article is to explain the cross-sectional variation in money donations to charities at the organizational level. Using a unique data base which includes volunteer labor data, this article tests the hypotheses that money donations are positively related to volunteering and the technical efficiency of the firm. Technical efficiency is measured by a number of nonparametric indices. The empirical results indicate inter alia that the more money donations and volunteering are found to be complementary at the organizational level. In addition, the results in this article are not consistent with the well-known hypothesis that government financing crowds out private donations.

Cnaan, Ram, et al. Nonprofit Watchdogs: How Useful Are They to the Average Donor? Working paper, University of Pennsylvania In the context of information asymmetry, a host of nonprofit rating intermediaries exist to rate the accountability and effectiveness of our many nonprofit organizations. These intermediaries, also known as watchdog organizations, claim to be of service to donors in selecting which nonprofit to support. Based on three waves of the Harris Interactive Donor Pulse, we found the overwhelming majority of donors (77.6%) do not consult these online intermediaries when making donations. We found two groups of donors that are more likely to use these intermediaries: donors who give large sums of money and people engaged in advocacy. We conclude with conceptual and practical implications.

Frumkin, P. and M. T. Kim (2001). "Strategic Positioning and the Financing of Nonprofit Organizations: Is Efficiency Rewarded in the Contributions Marketplace?" Public Administration Review 61(3): 266- 275. This article addresses the question of whether operational efficiency is recognized and rewarded by the private funders that support nonprofit organizations in fields ranging from education to social service to arts and beyond. Looking at the administrative efficiency and fundraising results of a large sample of nonprofit organizations over an 11-year period, we find that nonprofits that position themselves as cost efficient--reporting low administrative to total expense ratios--fared no better over time than less efficient appearing organizations in the market for individual, foundation, and corporate contributions. From this analysis, we suggest that economizing may not always be the best strategy in the nonprofit sector. The dataset comprises a panel of 2,359 nonprofit organizations with IRS data for 1985-1995 [probably SOI data although not clear from paper.]

Greenlee, J.S. and K.L. Brown (1999). The Impact of Accounting Information on Contributions to Charitable Organizations, Research in Accounting Regulation, Vol. 13, pp. 111-125. Although numerous studies have examined the impact of accounting information on investments in publicly traded corporations, few have addressed the ways in which accounting information affects contributions to nonprofit organizations. The two types of organizations are similar in at least one important respect. Both rely on external sources of scarce capital. Only a limited amount of funds are available to nonprofit organizations, and each organization must somehow convince resource providers that it deserves financial support. This paper explores the relationship between selected information and contributions to charitable organizations. Specifically, cross-sectional analysis is used to see if any relationships exist between administrative cost ratios, fund-raising cost ratios, and contributions to charitable organizations registered in the Commonwealth of Pennsylvania between 1991 and 1994, The results indicate that an inverse relationship exists between administrative cost ratios and contributions. More contributions were received by those charities with smaller administrative cost ratios. A positive relationship was found between fund-raising ratios and contributions. More contributions were received by those charities with larger fund-raising costs.

Greenlee, J.S., and D. Bukovinsky. (1998). Financial Ratios for Use in the Analytical Review of Charitable Organizations. Ohio CPA Journal. 57 (1): 32-38. While focused on ways certified public accountants might use nonprofit financial ratios in the audit process, this paper also provides good descriptions of what each ratio can mean and how it can be used or misused.

Jacobs, F. A. and N. P. Marudas (2006). "Excessive, optimal, and insufficient fundraising among the Nonprofit Times 100." International Journal of Nonprofit & Voluntary Sector Marketing 11(2): 105-114. Using a six-factor model of donations, we estimate the effect on net donations; i.e., donations less fundraising expenditures, of a one percent marginal increase in fundraising expenditures, for each sample nonprofit organization (NPO) from the Nonprofit Times 100 from 2000 to 2002. No prior study of U.S. NPOs estimates the effect of fundraising expense on net donations. We then use these estimates and what we argue is the correct benchmark, the ratio of fundraising expense to donations, to provide evidence, for each NPO, on whether the NPO's level of fundraising is 'excessive,' 'optimal' or 'insufficient," relative to the level that maximizes net donations. All prior studies racing log-log models use what we suggest is an incorrect benchmark for evaluating NPO fundraising behavior. • The estimated effect of a 1% increase in fundraising on net donations varies widely across NPOs in our sample--from an increase in net donations of 0.18% of gross donations to a decrease of 0.66% of gross donations. Of the 76 Nonprofit Times 100 NPOs with usable data in 2002, we estimate that 24 engaged in 'excessive' fundraising, 18 engaged in 'insufficient' fundraising, and 34 did not engage in "excessive' or 'insufficient' fundraising; i.e., we could not reject the null hypothesis of 'optimal' levels of fundraising.

Kähler, J. and A. Sargeant (2002). "The size effect in the administration costs of charities." European Accounting Review 11(2): 215-243. There has been considerable interest of late in the issue of the efficiency of voluntary organizations with authors such as Wise (1997) and Hyndman and McKillop (1999) noting appreciable economies of scale across the size categories investigated. In this article we develop this analysis, fitting different functional forms to the relationship between size and the ratio of administration costs to total expenditures (ACE). We show that an inverse function provides a simple, plausible and adequate representation of this relationship. We apply the estimated inverse function to derive a size-adjusted benchmark for the comparison of ACE ratios between charities. This adjusted benchmark can replace the traditional practice of comparing administration cost ratios to the sector average when assessing managerial efficiency. The authors use database of 401 charities listed among the Top 500 by Charities Aid Foundation (UK) for 1992-1996.

Keating, E. K., L. M. Parsons, and A. A. Roberts. (2008). "Misreporting Fundraising: How Do Nonprofit Organizations Account for Telemarketing Campaigns?" Accounting Review 83(2): 417-446. The purpose of this study is to examine the frequency, determinants, and implications of misreported fundraising activities. We compare state telemarketing campaign reports with the associated information from nonprofits' annual Form 990 filings to directly test nonprofits' revenue and expense recognition policies. Using a conservative approach that understates the extent to which nonprofit organizations violate the reporting rules, our study indicates that 74 percent of the regulatory filings from nonprofit organizations fail to properly report telemarketing expenses. Smaller nonprofits, less monitored firms, and those with less accounting sophistication are more likely to inappropriately report telemarketing costs as a component of net revenues rather than as expenses. Nonprofits that use external accounting services are more likely to properly classify the cost of their telemarketing campaigns as professional fundraising fees.

Khanna, J. and T. Sandler (2000). "Partners in giving: The crowding-in effects of UK government grants." European Economic Review 44(8): 1543-1556. This study examines the determinants of voluntary donations to UK charities, using empirical specifications that combine error-component and simultaneous-equations methods. In a series of tests, we identify the one-way fixed-effects endogenous representation for government grants as the best empirical model. When this endogeneity is taken into account, government grants cause significant crowding-in for the full sample and the two largest cohorts. Price coefficients are negative, and fund-raising coefficients are positive. Religion charities are net revenue maximizers; whereas other charity cohorts fund raise short of net revenue maximization.

Khumawala, S.B. and T.P. Gordon. 1997. Bridging the credibility of GAAP: Individual donors and the new accounting standards for nonprofit organizations. Accounting Horizons 11 (3): 45-68. In an experiment, participants examine a variety of financial reports to determine what information they consider to be most useful for making a giving decision. Participants report that they want charitable organizations to spend most of their funds on programs and to minimize spending on administrative and fundraising activities. Reports of revenues and expenses were valued more highly than reports of financial position (assets and liabilities) or cash flows. When asked to evaluate the most useful items that nonprofit organizations do or could report, potential donors noted that information describing the organization’s programs and the degree to which goals are achieved was the single most important item. Based on their findings, donors are most concerned with how donated funds are spent and whether or not the organization’s efforts are successful. Khumawala, S. B., L. M. Parsons, and T. P. Gordon. (2005). "TRACKS Assessing the Quality of Not- For-Profit Efficiency Ratios: Do Donors Use Joint Cost Allocation Disclosures?" Journal of Accounting, Auditing & Finance 20(3): 287-309. We examine whether required disclosures regarding joint cost allocations raise concerns about the validity of efficiency ratios reported by not-for-profit organizations. An experimental design is used to hold constant the geographic location, size, and mission of competing charitable organizations. Participants include financial officers of not-for-profit organizations (preparers), foundation executives (expert donors), and students (novice donors). We find that preparers base contribution decisions almost entirely on the reported fund-raising cost and accept the validity of reported program ratios. Foundation executives, representing experienced users of not-for-profit financial statements, also appear to accept the joint cost allocations as reported. By contrast, novice users are the most attentive to the allocation disclosures and consider them more often when deciding on the amount of a hypothetical gift. Overall, there is little evidence that joint cost allocation disclosures are used to adjust reported expenditures for fund-raising costs. Based on our results, donors appear to ignore the effects of allocating joint costs. Although current accounting standards limit the availability of an accounting method commonly used to manage financial results, it appears that the opportunity for not-for-profit managers to use joint cost allocations to manage ratios and influence donors remains.

Krishman, R., M. H. Yetman, et al. (2006). "Expense Misreporting in Nonprofit Organizations." Accounting Review 81(2): 399-420. We examine whether nonprofit organizations understate fundraising expenses in their publicly available financial statements. A large body of anecdotal evidence notes that an inexplicable number of nonprofits report zero fundraising expenses. We provide empirical evidence that the zero fundraising expense phenomenon is at least partly due to inappropriate reporting. We then examine to what extent these misreported expenses are the result of managerial incentives. Prior research finds an association between reported expenses and managerial compensation as well as the level of donations received. Using these findings we construct two incentive variables and find a positive association between misreporting behavior and managerial incentives. Our results also suggest that the use of an outside accountant reduces the probability that a nonprofit will misreport expenses, consistent with the use of an outside paid accountant increasing the reliability and usefulness of nonprofit financial reports. Finally, we find that SOP 98-2 reduced the probability that a nonprofit will misreport fundraising expenses.

Marcuello, C. and V. Salas (2001). "Nonprofit Organizations, Monopolistic Competition, and Private Donations: Evidence from Spain." Public Finance Review 29(3): 183. Presents an analysis of the determinants of money and time donations to Spanish nongovernmental organizations that channel aid to less developed countries. Purpose of Spanish nongovernmental organizations for development aid; Estimation of the empirical model; Relationship between time and money donations; Results of the tests made on the basic model inspired by the theory of monopolistic competition.

Marudas, Nicholas P. (2004). Effects of Nonprofit Organization Wealth and Efficiency on Private Donations to Large Nonprofit Organizations. Research in Government and Nonprofit Accounting, Vol. 11, 71-91. This study examines the effect of wealth and efficiency on donations using both pooled cross- sectional models and error components models (one-way fixed effects) using a panel of 1,239 large NPOs for the period 1985-1994. Findings include that private donations to large arts and philanthropic NPOs are negatively related to wealth but private donations to large education NPOs are positively associated with wealth and efficiency. Results for other industries were inconclusive.

Marudas, N. P. and F. A. Jacobs (2004). "Determinants of Charitable Donations to Large U.S. Higher Education, Hospital, and Scientific Research NPOs: New Evidence from Panel Data." Voluntas: International Journal of Voluntary and Nonprofit Organizations 15(2): 157-179. We provide improved evidence on effects that fund-raising, government support, and program revenue of U.S. higher education, hospital, and scientific research nonprofit organizations (NPOs) have on donations to those NPOs and provide improved estimates of price elasticities of donations to, and donor demand for output of, those NPOs. Applying econometric tests, we find the best-specified model is two-way fixed effects, which controls for organization-specific and time-specific factors. Results suggest that U.S. higher education, hospital, and scientific research NPOs fund-raise to the point where the marginal fund-raising dollar brings in zero dollars of donations, donor demand for output of hospitals and scientific research NPOs is price inelastic and price elastic, respectively, and results are not sensitive to specification of price. [Uses IRS SOI data for 1985-1994 for a sample of 838 with data over the 10 year period]

Marudas, N. P. and F. A. Jacobs (2007). "The extent of excessive or insufficient fundraising among US arts organizations and the effect of organizational efficiency on donations to US arts organizations." International Journal of Nonprofit & Voluntary Sector Marketing 12(3): 267-273. We estimate, for each nonprofit organization (NPO) in a sample, of 606 US arts NPOs, whether the NPO's level of fundraising is 'excessive,' 'insufficient,' or neither, relative to the level that maximizes net donations. We find that the effect of a 1% increase in fundraising on net donations varies widely across the arts NPOs in our sample--from an increase in net donations of 8.91% of gross donations to a decrease of 3.82% of gross donations. Of the 100 NPOs in our sample with the highest donations, the estimated effect of a 1% increase in fundraising on net donations varies more narrowly--from an increase in net donations of 0.27% of gross donations to a decrease of 0.32% of gross donations. Of these 100 NPOs, we estimate that only 3 engaged in 'excessive' fundraising, but 83 engaged in 'insufficient' fundraising, and 14 did not engage in 'excessive' or 'insufficient' fundraising. We also provide evidence that reported organizational efficiency does not affect donations to arts NPOs. This finding may be useful to managers and directors of US arts NPOs who believe that organizational efficiency does impact donations and who, therefore, incorporate the effect on efficiency in their decisions to allocate resources across fundraising, administration, and program objectives.

Okten, C. and B. A. Weisbrod (2000). "Determinants of donations in private nonprofit markets." Journal of Public Economics 75(2): 255. We estimate the responsiveness of donations to a number ofr economic variables, including price, advertising, and the availability of revenue from such other sources as government grants and program service sales. Utilizing a set of IRS data on individual nonprofit organizations in each of seven industries - including hospitals and higher education - for the years 1982-1994, we find distinct overall patterns as well as notable variation across industries. A nonprofit organization's fundraising expenditures are estimated to exert two countervailing effects on donations - the direct, advertising, and information, effect augments donations, while the indirect effect, on the 'price' of donating, has a negative effect. We do not find evidence that fundraising is carried to the profit-maximizing levels. In some industries fundraising is substantially short of that level, while in other industries it is excessive, implying that marginal return to fundraising is exceeded by the cost. Focusing on whether revenue from other sources affects donations to a nonprofit organization, we find evidence that revenue from either government grants or from the organization's own program sales activity generally does not crowd-out private donations. To the contrary, in most industries there are significant positive effects.

Peloza, J. and P. Steel (2005). "The Price Elasticities of Charitable Contributions: A Meta-Analysis." Journal of Public Policy & Marketing 24(2): 260-272. Tax deductibility has been recognized as a motive for charitable donations. This article reports on a meta-analysis that includes approximately four decades of estimates of the price elasticity of charitable giving. Their results suggest that tax deductions are treasury efficient: a $1 decrease in the cost of giving (through a tax deduction) results in more than $1 being donated.

Posnett, J. and T. Sandler (1989). "Demand for charity donations in private non-profit markets : The case of the U.K." Journal of Public Economics 40(2): 187-200. This paper presents estimates of the demand for donations for U.K. charities in 1985. These estimates make demand depend upon price, fund-raising expenditure, a quality index, and alternative revenue sources. The price elasticity of donations found here shows, for the most part, an elastic response and is consistent with previous studies using U.S. data. Our empirical results suggest that non-profits in the U.K., unlike their counterparts in the U.S., are net revenue maximisers. We discovered no significant evidence that public donations crowded out private donations in our sample of 300 charities.

Ritchie, W. J. and R. W. Kolodinsky (2003). "Nonprofit Organization Financial Performance Measurement: An Evaluation of New and Existing Financial Performance Measures." Nonprofit Management & Leadership 13(4): 367. Consensus about financial performance measurement remains elusive for nonprofit organization (NPO) researchers and practitioners alike, due in part to an overall lack of empirical tests of existing and new measures. The purpose of the current study was to explore potential similarities of financial performance measures derived from two sources: current NPO research and key informant interviews with NPO foundation constituencies. The authors examined financial performance measurement ratios with data from fifteen Internal Revenue Service (IRS) Form 990 line items. Using factor analytic techniques, they found three performance factors, each with two associated financial measurement ratios, to be present. They categorized the performance factors as fundraising efficiency, public support, and fiscal performance. This article discusses implications of the findings and future research.

Steinberg, R. (1986). "The revealed objective functions of nonprofit firms." RAND Journal of Economics 17(4): 508-526 Although assertions have often been made about the objectives underlying the behavior of nonprofit firms, there has been no empirical confirmation of these assertions. This article proposes a way to infer a nonprofit organization's objective function by estimating the marginal donative product of its fundraising. Panel data estimates, derived by using Hildreth and Houck's (1968) random coefficients model, suggest that welfare, education, and arts firms are service maximizers, that health firms are budget maximizers, and that the objective of research firms cannot be ascertained within the family of objective functions considered. See also Tinkelman (1999) who re-examined the use of “first difference” equations and questions this research approach.

Tinkelman, Daniel. (1998). Differences in sensitivity of financial statement users to joint cost allocations: The case of nonprofit organizations. Journal of Accounting, Auditing and Finance 13(4) (Fall): pp. 377-393. Tinkelman (1998) uses a New York database derived from Form 990-type information rather than GAAP financial statements. Two major differences from GAAP would be that legal entity is the reporting basis and donated services are not included. However, these NY Forms 497 are audited. He found that when fundraising and administrative costs are a higher percentage of total costs, donors react less favorably to an organization. However, it appeared that larger donors like foundations and corporations were more discriminating in paying attention to joint cost allocations which can be used to "turn" some fundraising costs into "public education" or other program service categories.

Tinkelman, D. (1999). "Factors affecting the relation between donations to not-for-profit organizations and an efficiency ratio." Research in Government and Nonprofit Accounting 10: 135-161. Accounting standard-setters assume that donors use financial information to allocate donations among nonprofit organizations. Using regression analysis on a sample of approximately 6,500 nonprofit organizations' state regulatory filings, I find that greater reported efficiency is generally associated with higher subsequent donations, and identify several factors related to the efficiency measure's relevance or reliability that affect the strength of the relationship. In addition, I compare the performance of the two different models of the price elasticity of donations and the sensitivity of donations to fund-raising share. Tinkelman, D. (2004). "Using nonprofit organization-level financial data to infer managers' fund-raising strategies." Journal of Public Economics 88(9/10): 2181-2192. Using IRS data from 1982 to 1994, this study finds the typical fund-raising elasticities in seven categories of nonprofit organizations to be between zero and one. These results are consistent with most nonprofit managers following intermediate strategies between pure program service maximization and pure organization size maximization. However, the distribution of fund-raising elasticities contains extreme observations that can disproportionately affect mean elasticities and standard deviations. As a result, prior researchers' tests of the difference of mean elasticities from zero may not properly characterize the behavior of typical nonprofit organizations.

Tinkelman, D. (2006). "The Decision-Usefulness of Nonprofit Fundraising Ratios: Some Contrary Evidence." Journal of Accounting, Auditing & Finance 21(4): 441-462. Prior research indicates that donors consider nonprofit organizations' historic fundraising ratios when making donation decisions. Theoretically, however, historic ratios are only pertinent to the donor's decision when they proxy for the organization's future marginal spending performance. In general, theory predicts average historic ratios will differ from future marginal ratios. Examining three large data sets, I find results consistent with theory. Incremental responses of donations to increases in fundraising expense are highly variable and poorly correlated with the average relations in a base year. While the cross-sectional response of donations to fundraising expense is generally linear over the relevant range, and average ratios are highly correlated between years, the low correlation of incremental to average ratios reduces the decision-usefulness of accounting data as currently provided.

Tinkelman, D. (2009). "Unintended consequences of expense ratio guidelines: The Avon breast cancer walks." Journal of Accounting & Public Policy 28(6): 485-494. Abstract: This case study examines how donor and rating agency focus on percentage-based expense ratios exacerbated pressures on the Avon Product Foundation’s breast cancer walks. Beginning in 2002, Avon changed its business and accounting practices in ways that eventually helped it report better compliance with charity monitor guidelines. However, the number of walkers and amounts of funds raised dropped; the new accounting practices are less transparent and of questionable conformity with GAAP.

Tinkelman, D. and B. Donabedian (2007). "Street lamps, alleys, ratio analysis, and nonprofit organizations." Nonprofit Management & Leadership 18(1): 5-18. This article offers an accounting-based framework for evaluating the efficiency of nonprofit organizations using four factors. Separately, these factors reflect (1) the proportion of revenues actually used in the current year, (2) the proportion of the expenditures allocated to programs, (3) the units of output produced from that spending, and (4) the value of the units produced, expressed in terms of an index value. Combined, these four factors measure the value of units produced per dollar of revenue received, an accounting measure of overall efficiency. Using this framework provides insight into both the appropriateness and the limitations of employing solely financial measures to judge nonprofit organizations and also identifies conceptual areas absent from currently available evaluation tools.

Tinkelman, D. & Donabedian, B. (2009). Decomposing the Elements of Nonprofit Organizational Performance. Research in Government and Nonprofit Accounting. Volume 12, 75-98. This paper outlines an analytical framework that contains both financial and nonfinancial measures in a structure that is similar to a traditional DuPont Analysis. The framework disaggregates current standardized efficiency which is equal to the number of standardized units of program service produced in a particular period per dollar of revenue. Analyzing this framework provides insights into both the relevance and the limitations of using such financial measures as the fundraising ratio to judge nonprofit organizational performance.

Weisbrod, B. A. and N. D. Dominguez (1986). "Demand for collective goods in private nonprofit markets: Can fundraising expenditures help?" Journal of Public Economics 30(1): 83-96. Focuses on the role of fundraising expenditures on the provision of public goods in private nonprofit market. Contribution of the not-for-profit sector in providing collective type of goods; Factors influencing charitable contributions to private nonprofit organization; Estimation of a demand function for the output of collective-good providers.

Wong, C. M., V. C. H. Chua, et al. (1998). "Contributions to charitable organizations in a developing country: The case of Singapore." International Journal of Social Economics 25(1): 25. This article looks at the role played by contributions to charitable organizations in a developing country and on its economy using Singapore experience as an example. They find donations are sensitive to the price of giving, size and age and some evidence of a crowding-out effect for government grants and subsidies.

Yetman, Michelle H. 2009. Economic Consequences of Expense Misreporting in Nonprofit Organizations, Working Paper, University of California – Davis, presented at 2009 AAA meeting. Prior research finds that donors reward nonprofits that allocate larger proportions of their expenses to charitable purposes with more donations. Research also finds that managers overstate the amount of expenses reported as charitable, ostensibly to attract more donations. This paper examines the extent to which donors adjust their reliance on nonprofit financial reports that overstate charitable expenses when making donations. Results show that donors place significantly less weight on financial information for those organizations that overstate their charitable expenses. The findings suggest that donors are at least partially able to see through low quality financial reporting.

Yetman, M. H. and R. J. Yetman, 2009. Accounting Choice and Multiple Objectives in Nonprofit Organizations, Working Paper, University of California – Davis, presented at 2009 AAA meeting. Stakeholders use nonprofit financial information for investing, contracting, and regulating decisions, and accounting choices affect the content of those financial reports. Nonprofit organizations are provided an accounting choice of whether or not to record depreciation on their fixed assets. As the depreciation choice simultaneously affects several nonprofit reporting goals, it provides a particularly rich setting in which to examine how managerial incentives affect accounting choices. We find that nonprofits are more likely to depreciate their assets when doing so makes them appear more charitable, decreases their income on taxable activities. Nonprofits are less likely to depreciate when doing so results in a reported net loss. When these goals conflict, managers prefer paying less in taxes at the cost of reporting lower charitable ratios.