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- Title
Do Donors Discount Low-Quality Accounting Information?
- Authors
Yetman, Michelle H.; Yetman, Robert J.
- Abstract
Prior research finds that donors reward nonprofits that report larger program ratios with more donations and that program ratios frequently are subject to intentional manipulation as well as unintentional errors. We examine how donors react to low-quality ratios. We find that the average donor discounts ratios that are inflated by only the simplest and most observable of methods. We then examine the effect of financial data availability on the average donor's ability to unravel inflated ratios by using the historical shift in data availability that occurred in 1997 and 1998. We find that donors began to discount ratios only after 1998. Finally, we examine whether the discount applied to program ratios varies across donor sophistication (measured as the percentage of fund balances with restrictions) and find that sophisticated donors apply incrementally larger discounts to inflated ratios and discount ratios that are inflated by more complex methods.
- Subjects
NONPROFIT organizations accounting; NONPROFIT organization finance; CHARITABLE giving; FINANCIAL ratios; ACCOUNTING ethics; DISCLOSURE in accounting
- Publication
Accounting Review, 2013, Vol 88, Issue 3, p1041
- ISSN
0001-4826
- Publication type
Article
- DOI
10.2308/accr-50367