Differences in the Giving Decision-Making of Sophisticated and Individual Donors

• In Event: 1.01 Nonprofit Research Concurrent Session: Donation Decisions

Abstract

I exploit a novel dataset of sophisticated donors to explicitly test differences in the nonprofit performance and governance measures used by sophisticated and novice private donors in their giving decision-making. The nonprofit accounting literature has been unable to directly differentiate between donations from sophisticated and novice donors, limiting prior studies to weak proxies of donor sophistication. Prior studies show that average donors place too much reliance on narrow measures of efficiency, but cannot discern whether sophisticated donors respond similarly. I identify one type of sophisticated donor, private foundations, which gave $70 billion in total grants to nonprofit organizations in 2016. I find that, relative to individual donors, sophisticated donors respond more strongly to financial vulnerability and governance, and less strongly to efficiency ratios. This study contributes to our understanding of how sophistication influences the donor response to accounting reports.

Author

• Kyle Alexander Smith, University of Alabama-Tuscaloosa