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Information Asymmetry, Organizational Performance, and Private Giving: Can Performance Ratings Build Trust in Nonprofits?

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Information Asymmetry, Organizational Performance, and Private Giving: Can Performance Ratings Build Trust in Nonprofits? Georgia State University ScholarWorks @ Georgia State University AYSPS Dissertations Andrew Young School of Policy Studies Summer 8-11-2020 Information Asymmetry, Organizational Performance, and Private Giving: Can Performance Ratings Build Trust in Nonprofits? Iurii Davydenko [email protected] Follow this and additional works at: https://scholarworks.gsu.edu/aysps_dissertations Recommended Citation Davydenko, Iurii, "Information Asymmetry, Organizational Performance, and Private Giving: Can Performance Ratings Build Trust in Nonprofits?." Dissertation, Georgia State University, 2020. https://scholarworks.gsu.edu/aysps_dissertations/4 This Dissertation is brought to you for free and open access by the Andrew Young School of Policy Studies at ScholarWorks @ Georgia State University. It has been accepted for inclusion in AYSPS Dissertations by an authorized administrator of ScholarWorks @ Georgia State University. For more information, please contact [email protected]. ABSTRACT INFORMATION ASYMMETRY, ORGANIZATIONAL PERFORMANCE, AND PRIVATE GIVING: CAN PERFORMANCE RATINGS BUILD TRUST IN NONPROFITS? By IURII DAVYDENKO August 2020 Committee Chair: Dr. Dennis R. Young Major Department: Public Management and Policy Nonprofit performance report cards, such as charity ratings, have evolved in the third sector as an attractive tool for addressing accountability concerns and improving the sector's effectiveness and efficiency. These performance monitoring services intend to increase the quality of philanthropy by helping donors allocate contributions to high-quality charities and getting organizations to improve their performance. However, we know little about how performance report cards as a policy instrument fulfill their expectations in the nonprofit sector. This research offers a comprehensive study of charity ratings that addresses three sets of questions. First, it explores the information content of charity ratings and assesses the degree of coherence among performance grades assigned by different rating services. The analysis of data shows that the informational content of charity performance ratings is lower than it appears on face value, and competing rating systems often send mixed signals to donors. Second, it examines whether and how conventional metrics embedded in charity ratings, particularly composite ratings and overhead spending ratios, influence perceived performance, trust, and giving decisions in individual donors. The findings show that individuals consider both ratings and overhead ratios when making decisions but give the ratings more weight. The study also reveals distinct patterns in donor reactions to low and high values on each of the two measures, interactions between them, and a moderating role of altruism, general trust, and mission valence. Finally, the study investigates how rated nonprofits respond to their ratings. It proposes that a public charity will react to an exogenous shock - the release of its charity rating by improving its measured performance, especially if it (1) initially gets a poor rating, (2) is in a highly competitive subfield, (3) relies more heavily on donations. The empirical tests show that public charities only respond in a limited way to being publicly rated, meaning limited effectiveness of the existing tool to elicit performance improvements in nonprofits. At the same time, the statistically and practically significant findings for the charities that initially receive the lowest ratings show that third-party nonprofit performance monitoring has some potential. INFORMATION ASYMMETRY, ORGANIZATIONAL PERFORMANCE, AND PRIVATE GIVING: CAN PERFORMANCE RATINGS BUILD TRUST IN NONPROFITS? BY IURII DAVYDENKO A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Andrew Young School of Policy Studies of Georgia State University Georgia State University August 2020 Copyright by Iurii Davydenko 2020 ACCEPTANCE This dissertation was prepared under the direction of the candidate’s Dissertation Committee. It has been approved and accepted by all members of that committee, and it has been accepted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Public Policy in the Andrew Young School of Policy Studies of Georgia State University. Dissertation Chair: Dr. Dennis R. Young Committee: Dr. Gregory B. Lewis Dr. Theodore H. Poister Dr. Michael K. Price Dr. Gregory D. Streib Electronic Version Approved: Sally Wallace, Dean Andrew Young School of Policy Studies Georgia State University August 2020 DEDICATION To those who never stop striving to be better themselves. IV ACKNOWLEDGEMENTS I want to express my sincere gratitude and appreciation to the following people who contributed immensely to the successful completion of my doctoral studies and dissertation. I am incredibly grateful to my stellar dissertation committee – Dennis R. Young, Gregory B. Lewis, Theodore H. Poister, Michael K. Price, and Gregory D. Streib – not only for accepting the mission of serving on the committee but for your time, patience, enthusiasm, academic brilliance, and invaluable advice. I would also like to extend my deepest gratitude to our Ph.D. Program Director Christine Roch, for believing in my determination to see this project to its successful completion and for her support. Special thanks to Matt Arp, Elsa Gebremedhin, and Amber Slyter for all the help I received from you on the administrative side of the process. This accomplishment would not have been possible without your hard work and assistance. V TABLE OF CONTENTS Page CHAPTER 1: INTRODUCTION ................................................................................................... 1 CHAPTER 2: CONTENT AND COMPARABILITY OF CHARITY RATINGS ........................ 9 2.1 Introduction ........................................................................................................................... 9 2.2 Overview of Nonprofit Rating Agencies ............................................................................ 12 2.3 Content and Comparability of Charity Ratings: Hypotheses .............................................. 25 2.4 Data and Methodology ........................................................................................................ 28 2.5 Findings ............................................................................................................................... 30 2.6 Conclusions and Implications ............................................................................................. 37 CHAPTER 3: INDIVIDUAL DONOR RESPONSE TO CHARITY RATINGS ........................ 39 3.1 Introduction ......................................................................................................................... 39 3.2 Performance, Trust, & Individual Donor Behavior ............................................................. 42 3.3 Performance Ratings and Donor Reactions: Research Hypotheses .................................... 46 3.4 Methodology ....................................................................................................................... 54 3.5 Measurement ....................................................................................................................... 57 3.6 Findings ............................................................................................................................... 59 3.6.1 Perceptions of Overall Performance ................................................................................ 59 3.6.2 Perceived Impact .............................................................................................................. 61 3.6.3 Perceived Efficiency ........................................................................................................ 64 3.6.4 Donor Trust ...................................................................................................................... 67 3.6.5 Donation Preference ......................................................................................................... 68 3.7 Conclusions and Policy Implications .................................................................................. 73 3.8 Limitations and Future Research Directions ....................................................................... 75 CHAPTER 4: PUBLIC CHARITY RESPONSE TO PERFORMANCE RATINGS .................. 77 4.1. Introduction ........................................................................................................................ 77 4.2 Literature Review ................................................................................................................ 80 4.2.1 Do Organizations Change Behavior in Response to Ratings? Evidence from Education, Healthcare, and the Corporate Sector ........................................................................................ 80 4.2.2 Theory of Organizational Response to External Performance Monitoring...................... 83 4.2.3 Public Charity Response to Third-Party Performance Ratings: Theory and Hypotheses 92 4.3 Data ..................................................................................................................................... 97 VI 4.4 Methodology ..................................................................................................................... 100 4.5 Findings ............................................................................................................................
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