Erica E. Harris

Nonprofit Stakeholder Response to Going-Concern Audit Opinions

Using a sample of industry-diverse nonprofit organizations, we find support for stakeholders’ use of nonprofit going-concern audit opinion (GCO) reports. We study the reactions of the three largest nonprofit stakeholder groups: donors, service recipients, and managers. Our findings suggest that although large (sophisticated) donors respond negatively to a GCO, small (unsophisticated) donors contribute more following a GCO. We also find that service recipients spend more at service-oriented organizations than at charitable nonprofits following a GCO. Finally, managers respond to a GCO by increasing organizational efficiency at service-oriented organizations. Taken together, the evidence suggests that GCOs are informative in the nonprofit sector, and stakeholders’ responses to GCOs depend on stakeholder and organization type.

Analysis of the Value of Celebrity Affiliation to Nonprofit Contributions

Nonprofit organizations rely on contributions to achieve mission-based objectives. While many determinants of contributions have been uncovered (e.g., fundraising budget, organization age, and operational efficiency), little is known about the role that celebrity affiliation plays in generating contributions. Using a sample of more than 500 industry-diverse charities with known celebrity affiliations, we find support for the celebrity-lift hypothesis—that celebrity-affiliated nonprofits are associated with increased contributions. We also find that celebrity affiliation has a substitution effect such that fundraising expenses are lower at celebrity-affiliated organizations.

Nonprofit Executive Incentive Pay

We utilize information only recently disclosed on Form 990 to examine the use, and consequences of, incentive pay at nonprofit organizations. Bonuses are common in nonprofits, as we observe that approximately 45% of the 44,000 organization-year observations in our sample reported paying CEO bonuses. We find that the bonuses are positively associated with profitability, competition from other nonprofits, firm size, available cash, and use of compensation consultants and committees, while negatively related to board oversight, donations, and grants. Our results also suggest that donors look unfavorably at the payment of bonuses; that is, bonuses are associated with lower future donations. Nonetheless, we find evidence consistent with the payment of bonuses incentivizing nonprofit executives, as despite reduced fundraising, future profitability and program services are positively associated with current bonus compensation.

Nonprofit lobby expense reporting

We investigate the determinants and consequences of nonprofit lobbying activity by analyzing 501(c)(3) nonprofit lobbying choices as reported on the primary tax form, Form 990. Under the Internal Revenue Code (IRC), nonprofits may lose their tax exempt status if they engage in a substantial amount of lobbying. We examine lobbying choices across three dimensions: (1) the test used to determine whether lobbying activities are substantial (i.e., making an H-election) (2) whether lobbying activities are directly related to the mission of the nonprofit (i.e., program related) (3) whether an affiliate nonprofit lobbies on behalf of a nonprofit. Results indicate lobbying choices are associated with the amount of lobbying reported and the amount of contributions received. Additionally, our results provide some evidence that nonprofit lobbying choices allowed under the IRC are underutilized.

Multiple Information Signals in the Market for Charitable Donations

We find robust evidence which indicates that nonprofit donors incorporate third party rating information into their decision to give. Specifically, using a sample of over 3,800 unique nonprofit organizations rated by the three largest charity rating organizations and over 12,000 unrated control firms, we find that rated organizations have significantly higher direct donations than unrated charities. Given our ability to simultaneously test ratings from all three ratings agencies, we are also able to identify an incremental increase in donations accruing to organizations that receive multiple ratings. Additionally, although organizations that receive a positive assessment are associated with a higher level of public support relative to organizations receiving a negative assessment, our results indicate that both positive and negative rated organizations in fact receive a higher level of direct donations relative to unrated organizations. Finally, we find that the market values consistency across the three rating agencies, supporting the notion that noisy signals are valued less by donors.